Average cost basis for mutual fund sales


S

somebody

I recently sold my mutual fund and it showed a profit from 2003-2011,
they have an
average cost single category for dealing with capital gains and I
showed a profit in that
time period. My question is the amount shown just a "raw" number so
to speak without
the average cost factor figured in?. I got the impression that my
tax advisor will do the
actual calculations to determine that what I owe and that I don't owe
taxes on the amount shown
as a profit. Hope this is not a dumb question....
 
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G

Gene E. Utterback, EA, ABA

"somebody" wrote in message
I recently sold my mutual fund and it showed a profit from 2003-2011,
they have an
average cost single category for dealing with capital gains and I
showed a profit in that
time period. My question is the amount shown just a "raw" number so
to speak without
the average cost factor figured in?. I got the impression that my
tax advisor will do the
actual calculations to determine that what I owe and that I don't owe
taxes on the amount shown
as a profit. Hope this is not a dumb question....
At least in theory, the amount is supposed to include everything necessary
to accurately reflect your average cost basis. What you mean by "the
average cost factor figured in" doesn't mean anything to me. If you could
elaborate on that point, it may help get you a better answer.

Also keep in mind that while the brokerages are required to report average
cost basis you are NOT required to USE average cost basis for reporting if
you choose to use a different method - such as specific identification, fifo
or lifo. You would need to have the records to support the use of a
different basis AND once you start using average cost basis you are locked
into that method for that particular investment and the holdings in place at
that time.

Gene E. Utterback, EA, RFC, ABA
 
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M

Mark Freeland

Also keep in mind that while the brokerages are required to report
average cost basis you are NOT required to USE average cost basis for
reporting if you choose to use a different method - such as specific
identification, fifo or lifo. You would need to have the records to
support the use of a different basis AND once you start using average
cost basis you are locked into that method for that particular
investment and the holdings in place at that time.
For funds purchased prior to 2012 (obviously the case for the OP, who
sold the shares in 2011), brokerages are not required to report average
cost, or any other cost, basis. Neither to you nor to the IRS. They
may report some possibly real, possibly fictitious number to you, but
they do not report it to the IRS (unless they have made an election to
do so - highly unlikely).

Keep in mind that all the rules change for fund shares purchased since
Jan 1, 2012 (and for stocks purchased last year, and for bonds purchased
starting 2013). Then, the broker effectively becomes an agent of the
IRS, and the method and shares you tell the broker (or let the broker
choose by default) is effectively what you are telling the IRS. No
chance to change your mind once the trade settles.

Regarding the original question - my guess is that the OP was wondering
whether the cost shown by the brokerage was the actual cost of the
shares, and whether the accountant had to somehow average the costs.
The answer is no, but still yes. If a brokerage says that the number
is an average cost, then it has already averaged the share costs. But
yes, you (or your accountant) are the one responsible for the
calculation. There are many reasons why the cost could be different
from what the broker told you; even post 2012, it is your responsibility
to get the numbers right. The only difference post 2012 is that if your
numbers don't match those of the broker, you _will_ be asked to explain
why. (Wash sales across accounts is an obvious case where the numbers
won't match.)
 

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