Mutual funds a. distribute earnings to receive favorable tax treatment . b. pay federal income taxes....

Mutual funds

a. distribute earnings to receive favorable tax treatment

. b. pay federal income taxes.

c. pay taxes only on capital gains.

d. pay only state and local taxes.

Solutions

Expert Solution

Solution:

Option A = distribute earnings to receive favorable tax treatment

Reason: Mutual fund generally distribute their income to the unit holders to minimize overall tax payment by the fund. Because MF trusts are taxed at higher tax rate so any income retained by the fund subject to higher tax implication than in the hand of unit holder who are taxed at lower tax rate.

Mutual fund don't pay tax at local or state tax.

Capital gains tax and federal tax are included in the hand of unit holder MF trust don't pay it.

jeff jeffy answered 2 years ago

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