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Cost Basis Analysis

Final

QuestionAnswer
t or f the IRS allows you to use different accounting methods to determine cost basis but you must use consitantly true
t or f the same share of a security must use the same acct method, but different securities can use different methods true
average cost single category(ACSC)cost basis method may only be used for mutual funds and taxpayers must elect such method on their tax return. If a taxpayer chooses this method you may not change without IRS approval
When are you allowed to use the ACSC method? 1. If you redeemed shares of that fund in the tax year currently being reproted or earlier and you've used the ACSC method to report all prev sales or redemptions 2. this is the 1st tax year you redeems shares and you plan to use ACSC in future
specific share identification cost basis method to use this method, appropriate instruc. must be given before and the method will be indicated with the letter "s" on the tax reporting statement.
t or f if some or all of the tax lots you specified do not correspond with Fidelity records, or if specific shares were selected manually rather than elect. or if you used the specific share id method then FIFO system will be used true
t or f you must decide on which method to use before you sell shares or you may be stuck with FIFO method or average basis method true
If you sell your entire holding in a particular fund how do you figure your tax basis? It is the sum total of the cost of all your share acquititions, including any that you bought via the fund's automatic dividend reinvestment program.
4 accounting methods allowable by tax code 1. First in, first out (FIFO) 2. Specific id method 3. single category or regular average basis 4. double category average basis method
FIFO Method Assumes the shares you sell come out of the earliest acquired blocks you own.
What method tends to generate the biggest tax bill in a rising market? FIFO
What is the default acct method according to the IRS? FIFO
What must be done first to use Specific ID Method of accounting you must instruct your broker or the fund to sell specific shares by reference to their acquisition date and per share cost.
Should you broker send you a receipt of your instructions when you instruct him to use specific ID method or double category method? yes, this is very important, however many will not send receipt so you must make a note of your own for your tax records.
when can you use the single category average basis method of accounting when you leave your mutual fund shares on deposit in an acct with an agent or custodian, but not when you actually have possession of your share certificates.
How do you determine capitals gains when using single category avg basis method first average basis (total amount paid for shares divided by # of shares) then: amount paid for orig shares - average dollar amount X # of shares sold.
t or f almost all funds now report single-category average basis numbers on transaction statements. true
where do you indicate that you want to use single category average or double category basis method? on the line of schedule D, where the gain or loss from the transaction shows up. Just write "single-category or double average basis method"
t or f once you use the single category average method in a fund, you must continue to use it for this fund in the future. All other funds are uneffected. true.
Double Category average basis method you separate shares into 2 pools - one consisting of long term (held over 12 mo) and one of short term shares.
How do you calculate earnings of Double category avg basis method? you calculate the avg per share basis for each pool. you can then sell strictly out of one pool or the other or mix and match as you see fit.
how much is the capital gains tax? 15%
t or f once you use the double category avg you are locked into it for the future but with specific ID it has no impact on future transactions. true
wash sales rule you tax loss gets disallowed if you buy back the same fund shares within 30 days.
Created by: delorya