This month investors are receiving Form 1099 tax statements showing their taxable mutual-fund distributions in 2008 and any sales of fund shares they made last year. (A 2008 law generally gave firms until mid-February, rather than the previous Jan. 31, to mail this information to investors.) You may also receive statements showing the "cost basis" of any fund shares you sold. Do you know how to apply these documents in figuring your 2008 tax bill? Test your knowledge with this month's quiz.

1) 1099-DIV forms for your mutual funds report your total fund dividends and the subset of those that are "qualified" dividends subject to tax at no more than a 15% rate. What type of income earned by a fund and distributed to fund holders has "qualified" status?

A. Most stock dividends

B. Interest from corporate and Treasury bonds

C. Both A and B

ANSWER: A, because this is income that would also be "qualified" if you received it directly as a company shareholder. Mutual funds typically are corporations, and so the income they distribute to their shareholders is technically dividends. But the tax treatment of those fund dividends is based on the underlying income type. Fund dividends derived from taxable bond interest are taxed at ordinary-income rates, the same as if you earned that interest on bonds you owned yourself.

2) True or false: You owe tax on 2008 fund distributions even if you didn't receive those payments in cash and instead had the money reinvested in additional fund shares.

ANSWER: True. If you hold fund shares in a taxable account -- and not, say, in a 401(k) or an individual retirement account -- distributions are taxable regardless of whether you got the cash or you reinvested in more shares.

3) The capital-gains distributions reported by funds on Form 1099-DIV reflect which of the following?

A. Your sales of fund shares

B. Profits on securities sold by a fund

C. Fund holdings that have increased in value

ANSWER: B. Funds are required to distribute to investors each year their net profits from selling securities for more than they paid. After a horrendous year like 2008, some investors wonder how funds could possibly have had gains to pay out. Here's how: In 2008, your fund may have sold securities that it owned for many years and that, even after an ugly year, were worth considerably more than the purchase price.

Moreover, some funds were forced to sell a lot of securities last year to pay off investors who redeemed fund shares.

4) Some funds sold more securities last year at a loss than they sold at a gain. Where are those 2008 net losses reported to investors, so they can deduct them on their tax returns?

A. Form 1099-LOSS

B. A new form, due in March

C. Sorry, you're out of luck.

ANSWER: C. While funds are required to distribute their net realized gains, which can boost investors' tax bills, investors don't get an immediate tax benefit when a fund they continue to hold has net realized losses in a tough year like 2008. However, fund investors can benefit from those losses in coming years. The fund can use those losses to offset realized gains in future years, avoiding or reducing a taxable gains distribution to investors.

5) Say an investor got a Form 1099-B showing $24,000 in proceeds from a sale of mutual-fund shares in a taxable account. On how much of that $24,000 will he or she have to pay tax?

A. It depends on the initial purchase price.

B. It depends on the investor's other 2008 income.

C. It depends on whether the person had reinvested dividends from the fund.

D. All of the above.

ANSWER: D. At the most basic level, you figure the capital-gains tax on any securities sale based on your profit -- the difference between your sale proceeds and your cost. But with fund investments, you've got to look beyond your initial purchase and any other instances in which you wrote a check or otherwise took the initiative to boost your stake: If you had periodic fund distributions reinvested in additional shares, all those reinvestments also need to be counted as purchases.

If there is indeed a gain, the tax impact will depend on other aspects of your situation. For instance, starting with tax year 2008, people with income below certain limits pay no tax on some capital gains and qualified dividends.

6) Tax advisers often suggest that investors not rush to file their tax returns early, say in February. Why is that?

A. It's just too much work.

B. The tax laws for investors might change before the April filing deadline.

C. Financial firms sometimes send out corrected 1099s.

ANSWER: C. Financial firms sometimes send out amended 1099s over the months following their initial reports, and that's likely to be the case even with the new mid-February deadline. For instance, a fund may get revised information from a company whose shares it holds about whether a payment to investors was a qualified dividend. If you file early and then get a revised 1099 showing more taxable income, you might then have to file an amended tax return.

7) True or false: Mutual-fund companies and brokerage companies are legally required to calculate the cost basis of securities sold by investors in 2008.

ANSWER: False. Many firms provide a summary of an investor's cost for any securities sold in the just-ended year. But that's strictly a voluntary step, aimed at making it easier for investors to do their taxes. However, the rules are changing. Under a law passed in October, firms will be required to report cost-basis figures for mutual-fund shares purchased beginning in 2012 (and for stocks purchased beginning in 2011).

8) True or false: If your financial firm calculated the cost basis for you, you are required to use that cost figure when you file your 2008 return.

ANSWER: False. One thing to note is that financial firms typically calculate your cost basis for fund shares based on the average cost of all the shares you own in that fund -- but that is only one of the methods you are allowed to use to figure your cost. For more information on the various methods -- and some limitations on changing from one method to another -- see Internal Revenue Service Publication 564, "Mutual Fund Distributions" (available online at irs.gov ).

9) Financial firms send their 1099 forms reporting fund dividends and sales to both investors and the Internal Revenue Service. To whom are the cost-basis reports sent?

A. To investors only

B. To investors and the IRS

ANSWER: A, for now. That will change in a few years when cost-basis reporting becomes mandatory. The reporting requirement grew out of concern that some investors were overstating the costs of their securities and thus underpaying their taxes when they sold.

10) True or false: While most income from municipal bonds and muni-bond funds is exempt from U.S. tax, some of that income is taxable under the alternative minimum tax.

ANSWER: True. That AMT-taxable income from so-called private-activity muni bonds is reported on Line 9 of Form 1099-INT, which reports your interest income. If you have such income for 2008 and are subject to the AMT, or expect to be subject to the AMT this year, look into switching to another muni-bond fund. Many funds avoid such bonds; that is indicated in their prospectuses and sometimes in their names.