Glossary of Tax Terms
Alternative Minimum Tax
A federal tax designed to ensure that high-income individuals pay a fair amount of income tax.
Cost Basis
Purchase price, including commissions and expenses, used to determine capital gains or losses for tax purposes.
Exchange
A sale of shares from one fund and a purchase of shares into another fund.
Gain
An increase in the value of mutual fund shares. The gain is not realized until the shares are sold for a price higher than the purchase price.
Income Distribution
Interest and dividends earned on securities that are paid out to shareholders (after subtracting fund expenses) in the form of dividends.
Long-term Capital Gains
Gains on sales of stocks in the mutual fund portfolio that have been held for more than 12 months.
Loss
A decrease in the value of a mutual fund shares. The loss is not realized until the mutual fund shares are sold for a lower price than the purchase price.
Net Asset Value (NAV)
The value of a mutual fund's assets after deducting liabilities divided by the number of shares outstanding.
Redemption
A sale of mutual fund shares.
Reinvestment
An option whereby dividend and capital gains distributions automatically purchase new fund shares.
Retirement Plan
A type of investment account. Examples of such accounts include: Individual Retirement Accounts (IRAs), Roth IRAs, Simplified Employee Pension (SEP) plans, and SIMPLE accounts.
Rollover
The transfer of funds from one qualified retirement plan to another qualified retirement plan within a specified period of time; otherwise the funds are taxed as ordinary income.
Short-Term Capital Gains
Gains on sales of stocks in the mutual fund portfolio that have been held for less than 12 months.
Tax-Deferred Account
Investment vehicles that shield earnings from taxes, such as 401(k) plans, 403(b) plans, and individual retirement accounts. Although mutual funds held in these accounts are not taxed currently, they are subject to state and federal taxes when withdrawn.
Wash Sale Loss
If you redeem or exchange mutual fund shares at a loss and replace those shares by purchasing shares or reinvesting dividends in the same fund or very similar fund within 30 days before or after the redemption or exchange, this is known as a wash sale. Tax regulations prohibit claiming a loss on the sale to prevent investors from realizing losses solely to offset capital gains. The loss is included in calculating the cost basis of the repurchased shares.