I am in the planning stages of selling some shares I have in my mutual fund. It may be something I do relatively soon but it may not be. The mutual fund I have uses an average cost method as the cost basis method. Also the shares I would be selling would likely be noncovered. I've had this fund for awhile but never have sold anything at all.
My question is if these shares are noncovered, how I will report the average cost basis method to the IRS? Will I do it via a 8949? Can it be done via Turbotax?
I am a novice investor but I am trying to minimize my tax liability. I think once I figure this part out, I will have greater confidence when I get to selling these shares.
Any help is appreciated!
First you basis ---- irrespective of cost averaging that the broker uses, your cost basis on the Mutual Funds remains at what you paid for these including commissions.
You report your gross sales & sales commissions on form 8949 --- uses part II for long-term and also include check box to show whether basis was reported by broker or not.
You declare the basis from your records. If the IRS wants proof they will ask for underlying records.
Can you use TurboTax to prepare the form 8949 and schedule D ? Absolutely yes -- just have to use the higher functionality versions. My personal favorite is CD/ Downloaded version of TurboTax Home and Business. But you can use some other versions also. I like this one because (1) it covers all situations, (2) everything is on my machine ( for future ref ) and (3) also I can actually see the forms/worksheets being filled out ( in forms mode )
Well this mutual fund was a gift trust that was set up for me over twenty years ago. It matured about five years ago. So far I haven't done anything with it. I am just confused by this whole process. I don't want to be liable for the whole tax proceeds of the sale!
using average cost for a mutual fund is an acceptable method.
as a matter of fact there is a second acceptable method. shares are put in to 2 categories short term holding and long term holding. average cost is calculated for each. as time goes on short term shares are move to the long term category when their holding period becomes long term and the average cost for each category is recalculated. in practice , I never seen this
you just enter it on 8949 (really tt 1099B worksheet) and then box 1a = b cost basis not reported
2 s/b yes and 3 s/b no your calculated cost is entered on 7a
there is another issue because these shares were acquired by gift you also need to know donor's basis here's why
If the FMV when you received the gift was more the original cost basis, use the original cost basis when you sell. This is the most commonly-encountered situation.
If the FMV when you received the gift was less than the original basis, and you later sold the stock for:
More than the original basis, use the original basis.
More than the original basis but less than the FMV at the time of the gift, your selling price becomes the cost basis. You won't report a gain or loss in this situation.
Less than the FMV at the time of the gift, use the FMV at the time of the gift.