Eventhough I get taxed on mutual funds every year, will I get taxed when I cash them out?

Keep track of the dividends and capital gains distributions you pay tax on. and add it to your basis when you sell.

Yes.  The tax each year is on the dividends.  The tax when you cash out is not the gain in share price.

You don't get taxed on them every year unless you sell.  You get taxed on EVERY sale.  You do NOT get taxed on mutual funds until you sell them.

You get taxed on the dividends and capital gains.  If they are reinvested and not paid to you in cash, they are added to the basis (cost) of your funds.  The profit is subject to capital gains tax when you sell.

Reinvested dividends and capital gains distributions which are taxed are also added to the basis of your mutual fund shares.  Since basis is subtracted from proceeds when the shares are eventually sold, there is no double taxation.

Each year, the fund makes a distribution of dividends and capital gains which the fund earned during the year.  That distribution is taxable, whether you take it in cash or reinvest it in the fund.  Then, when you sell your shares, the profit you made on those shares (the difference between what you received when you sold them and what you paid when you bought them) -- but only that profit -- is taxed as a capital gain.

Example:  You buy shares for $1,000.  At the end of the year, the fund makes a taxable distribution of $50.  You elect to reinvest that distribution, using it to buy more shares.  Later, you sell all your shares for $1,200.  There are two taxable events.  The $50 distribution is taxable, whether you take it in cash or reinvest it in more shares.  Then, you are taxed on your $150 capital gain ($1,200 proceeds, less $1,050 total cost of all the shares) when you cash out your holdings.

There are two ways that mutual funds are taxed. One if for any dividends the fund declares. The second is the capital gain that the fund has. That is the difference between the cost of all of the shares you own and their value when you cash them in.  I believe you can get a form from the IRS that explains how mutual funds are taxed. 

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Get publications 525 and 550 from IRS.GOV