For federal income tax purposes, it appears that you hold certain funds which are considered “grantor trusts”. You’ll need to take a few extra steps to calculate your adjusted cost basis for these investments and then report them on your taxes. This is because the income from the trust is taxed to the grantor, and not the trust itself. In this structure, you’re treated as owning the underlying assets directly. So the income taxes from the trust “flow through” to you, the Shareholder.
Because grantor trusts generally do not generate cash flow, they must sell a portion of their underlying assets to cover trust expenses. These sales will be reported by you on your tax return, and the cost basis for these sales will need to be computed for that purpose. However, grantor trusts publish on their websites tax statements in which they disclose these asset sales, which you can use to compute your taxes.
If you sold or redeemed an interest in a grantor trust during the tax year, the sales proceeds will be reported on your Form 1099-B. Because these funds are considered “non-covered”, you’ll need to keep track of and report the cost basis info on your Form 8949. Non-covered cost basis means that your brokerage firm is NOT responsible for reporting cost basis information to the IRS, and they’ll only report the sales information. For non-covered securities, you’re responsible for reporting cost basis information to the IRS when you file your taxes. If you don’t report your cost basis, the IRS considers your securities to have been sold at a 100% capital gain, which can result in a higher tax liability.
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