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Posted by San Diego CPA on June 13, 2006, 10:48 pm
Please log in for more thread options >> gsk wrote:
>>> Can someone help me figure out how to report on the sale of
>>> a mutual fund. I bought the mutual fund way back in 1993,
>>> through the years I received cap gain and dividends which
>>> were reinvested back on the same fund. I sold everything
>>> last June. The bank did not provide me with cost basis.
>>> How shall I report. Do I add all the cap gain and dividends
>>> to my original cost and bottom line would be my cost basis?
>>> how about short term and long term cap gain? Please help.
>> You are correct. Add all the reinvestments to basis.
>> Everything would be long term except the dividends
>> reinvested within a year of the sale, and those shares will
>> be a short term sale. Do not add them to the basis of the
>> original shares or year old dividends.
> I don't know about the OP, but I have to pay taxes on the
> cap gains and dividends for the tax year in which they are
> distributed. What can you do about those taxes? Are they
> to be added to the basis? Somehow it seems that double
> taxation creeps in.
>
> Let's say:
> Cap gains/dividends reinvested in 2003 were $1000
> Taxes paid on that: $150
> This portion of stock sold in 2005 for $1500
> Straight cap gains on this is $500, but there was already
> $150 tax paid.
> Is the "net" cap gains now $350, or not?
It doesn't work like that. The gain in your example would
be $500 (not $350). What you're proposing would in effect
be giving you a deduction (reduced gain) for your federal
income taxes which of course are not deductible. Keep in
mind in your example that upon disposition, you're only
paying tax on the portion of the sale price that represents
the GAIN over previously taxed income (i.e., the $500),
you're not paying taxes on the entire $1500 proceeds, if you
were paying tax on the 1500, then you would have double
taxation on the first $1000.
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