What defines a taxable account?

A taxable account is characterized by the taxation of investment income and gains. In a taxable account, taxes are typically paid on the money after it has been earned, but before it has been invested. This means that any interest, dividends, or capital gains generated from investments held in the account are subject to taxes each year as they are realized.

When considering the other options, it's clear that they do not accurately represent how tax implications work within a taxable account. Taxes are not paid solely on returns; they are also applicable to any gains realized during the year, not just the returns. Taxes on a taxable account are assessed on earnings throughout the year rather than being deferred until after investments have been made. Lastly, while certain investment types may have different tax treatments, in a taxable account, the general rule is that all realized earnings are subject to taxation, making option C the correct understanding of how a taxable account operates.