How do you handle the income tax reporting when you have purchased a mutual fund over various periods and sold

Answer 1

You need to know about the "FIFO" Rule. "First In, First Out" is the way you know which shares you sold. For example, if you purchased 100 shares of ABC in October, and 200 shares in November, then SOLD 200 shares in December, you would be selling the 100 shares from Oct., and 100 of the 200 shares you purchased in November.

This can get complex, especially if you have purchased small amounts over a long period of time. It is important to keep records for this reason. If you have not kept your records, ask your broker for them.

After you know what shares were sold, you'll know your "basis", or what you paid for the stock. This is important because you don't pay tax on your principal investment.

I've attached the IRS publication about investment income, and if you need anything further, feel free to contact me.

Answer 2

The other answers overlook a special rule for mutual funds. Instead of tax lot identification for sales you can use the "average cost" method instead. Just add up total purchase prices including reinvested dividends and divide by total shares held. The resulting average cost per share is multiplied by shares sold.

Answer 3

Every buy and sell is put on the schedule D. There is a row for buys and a row for the sell and then a total of profit or loss. You can use more than one sheet and some day traders have multiple pages. There is also the first in, first out rule that if you put $2,000 in on a fund and took $2,000 out of the fund, you won't be taxed on that $2,000.

Answer 4

You can put "various" in the date purchased, and the average cost you paid in the basis column. Once you start selling though, if you're still buying, keep close track of transactions and costs, since the average cost will change as you buy more.