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Finally done.....printed out return - 16 pages plus attachments......it gets more complicated every year. Even with tax cut, you go nuts finding all the details. SPent 5 hours backtracking companies that issued me 'fractional' shares for spin-offs, to find the cost basis and purchase date. Most of my stocks it seems have merged, spun off something, consolidated, been bought out, and all of them I think have split a couple times.

My mom had about 110 shares of AT&T back in 1970. You wouldn't believe the file of paperwork she had - splits, spin offs (baby bells), LU, the wireless stocks, the mergers and takeovers, the name changes, fractional shares, more spin offs, more takeovers. Fortunately, Uncle Sam doesn't make you find out the cost basis at death. You just come up with a list of the current company names and number of shareholders. She kept track of that - loved those RBOC dividends.

For those of us living, the record keeping gets to be a big big pain.

There's a lot to be said for having 'everything' in a 401K or IRA - you don't have to worry about any of that.

Then again, I've had some mutual funds for nearly 30 years (part of company plan way back when). I have files 3 or 4 inches thick, with statements all the monthly extra shares I've bought along the way, and the cost. It would take a month of work to figure out the cost basis of all of my fund units!....(and the companies won't do that going back 30 years). Some do now - keep track of your cost basis. When you go to sell, you need to figure out your cost basis. Which is why some of these are never going to get sold!.....( I am taking the cap gains distributions in cash each year - slowly depleting this funds).





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<<Then again, I've had some mutual funds for nearly 30 years (part of company plan way back when). I have files 3 or 4 inches thick, with statements all the monthly extra shares I've bought along the way, and the cost. It would take a month of work to figure out the cost basis of all of my fund units!....(and the companies won't do that going back 30 years). Some do now - keep track of your cost basis. When you go to sell, you need to figure out your cost basis. Which is why some of these are never going to get sold!.....( I am taking the cap gains distributions in cash each year - slowly depleting this funds).
>>


I'd be tempted to do one of two things. If the basis is under ten percent of the sale price or so, just include the whole amount as a gain if it's too much of a pain in the neck to compute.


The other alternative would be to close one eye and make a guesstimate on the basis. If the IRS asked for documentation, just hand them the four inch thick file with a smile!

My own experience with having the IRS require me to document my rental expenses recently was that they accepted the report and documentation I supplied without disputing any of it. I'm embarrassed to say I got an additional $1100 or so back in refunds.

Perhaps the Badger can suggest approaches to dealing with this kind of problem.



Seattle Pioneer



Seattle Pioneer


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". If the basis is under ten percent of the sale price or so, just include the whole amount as a gain if it's too much of a pain in the neck to compute. "

Let us say you bought $30,000 worth of fund. It didn't go up or down during the year. You keep it from Jan 2 to the next Jan 2.

IN many cases, the actual cost basis is 'higher' per unit that the selling price. If a fund gives you a 33% cap gains distribution in one year (like my one Fidelity fund last year), the new price of a unit is 1/3 less. That is, if you had 1000 units, priced at $30 per unit, ($30,000 in funds), after your cap gains distribution of 33%, you suddenly have $30,000 worth of funds, but now it is 1300 units at $23 share. You pay tax on the $10,000 cap gain distribution. You have essentially pre-paid the tax on an increase in fund value to $40,000. (hopefully the fund went up by that much in the year, but last year, not only did the fund not go up, it went down, and still paid a 30% cap gains distribution!!!!)

Your new tax basis is different.

You go to sell half your fund, they sell 650 units at $23 share.

You paid $30/sh for those units. (up to the first 1000 units). You get to take a $7/sh cap loss. No?

If the fund units now go back up to 30/sh, and you sell two years later, you sell for zero net gain, paying no tax. (well, you already paid it!).

that, plus monthly dribbles of dividends re-invested in partial shares makes it a nightmare.

Lots of people pay double tax on mutual funds.....

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I hope this thread generates some good input as it has so far. I had ducked doing my own taxes the last several years for various reasons so was determined to wade thu it myself for a better understanding of what taxes are doing to me (not to mention the obvious mistakes that preparers made). Since my entire retirement money is in the market (no pension), I have to stay in the market, but agony upon agony, I don't think I can face going thru this every April. I do have some mutual funds which have thrown off obscene capital gains, and I need to sit down and figure out if they are worth keeping; I suspect they may not be.

Any comments on structuring your portfolio specifically for ease in tax preparation?
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Sure. Buy and hold individual stocks or low turnover index funds and don't automatically reinvest dividends. That's what I have come to after a year or two of hair-pulling with the tax man.
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Any comments on structuring your portfolio specifically for ease in tax preparation?

That's a good question.

The first thing is to not have umpteen accounts here, there, and everywhere. I'm still working on that. Have one IRA account with one thing in it, that I can't move....so I am stuck with that IRA for another year or two. Not a tax time problem, but still get statements every month telling me what I have. (I only keep the last one, since other things going on inside the IRA are irrelevant when you sell it). Still, paperwork to track is paperwork. Eventually will get down to 1 IRA (rollover) and last company's 401K (which contains ESOP stock that I can't take out for 5 more years to avoid penalty).

I have a couple other accounts that were set up when I worked for company #2. Pension (at age 60) is one...don't hear from them often ...not 60 yet...have two other funds from employer #2. One is a long term money fund - now taking the interest each month and using it as living money. Pays 7% or so. Will leave it there. Other is mutual fund, that goes back 30 years. Now taking capital gains each year. Have to pay tax on it, and no need to keep re-investing, as you need living money anyway. And if I did decide to re-invest it, it would be in index fund. This fund spins off about 10% a year in cap gains.

Also bought some Fidelity funds along the way. Haven't taken those cap gains yet, but thinking about doing it. That slowly depletes them. To me, that is almost easier than trying to figure out what my tax basis is....been letting the cap gains and dividends re-invest for going on 18 years or so, and there is one heck of a pile of paper to go through. And six different Fidelity funds. So soon I will take the cap gains, and even though they never will go to zero, when it gets down to $5000, I'll just wing it. Actually, by then I should be able to take a big loss on it.

Fortunately, both of those mutual funds are only a total of about 5% of assets, so depleting them slowly is not a factor in portfolio growth.

Even though I have about 30 stocks in my stock account, each year, 3 or 4 of them spin off something, resulting in fractional shares paid in cash. Some years I just wing it, and come up with something out of thin air. This year, I actually tried to backtrack - through years of splits, company takeovers, spin offs before the spin off, etc. Then you have to find the paperwork that shows how to allocate the spin off. It gets messy for all of $50 or $100 'income' from fractional shares. Then again, if I save $50 for a few hours work, that isn't bad pay (and no FICA or income tax on that!). In the past years, I usually just put about 2/3rds the value of the income from the frac share as the value....and entered var-l or "various purchase dates", long term, into Tax Cut.....so if I got $20 frac share income, I put down $14 cost basis.


Even though owning individual stocks usually gives you the least hassles, the constant spin offs and frac shares also make your life miserable. It wasn't always that way. Even if you buy 100 shares, next year it might be 150, then something else. Spin off gives you 33 shares per 100, or similar, so you get a frac share. Then a buyout at 1.66 new shares per old share, and you are getting a long trail of paper!.

The dividends aren't a problem as broker neatly gives you all of that at the end of the year. (and the frac share 'income'). Just a lump sum. Individually held stocks that pay dividends not in a broker account also send you reams of paperwork each year.

What's in your IRA or 401K you can essentially forget about at tax time (unless you are withdrawing). Splits, spin offs, frac shares, mean nothing there). You do want to make sure they are doing things right though - don't want to lose things).

Funds in your 401K or IRA you don't have to worry about either - I just keep the current one. Even when you sell stuff there, it is just income. No tax basis to worry about. (except roth which you do have to track your contributions).

I guess my advice would be, if you get a lump sump distribution, and have to invest it in taxable accounts is 1) stay the heck away from mutual funds that give you large cap gains distributions 2) don't go overboard on 7 or 10 accounts, 3) keep most of your stock in broker accounts (discount broker)...that keeps the dividend tracking easier. Many of the mutual funds will now track your tax basis of shares throught the cap gains distribution (and dividend) yearly cycles for you.

If you want to diversify, buy 3 or 5 or 7 index funds. If you buy 20 or 30 individual stocks, keep good records of the tax basis. That is easy starting now - with computer programs you can enter your accounts monthly from your monthly statements. (past history over the last 30 years wasn't so kind ).




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Greeting, telegraph.

I had a similar problem this year due to the AT&T/MediaOne merger and the Lucent/Avaya spinoff. I've held inherited AT&T shares since 1983 and dread selling them and their offspring due to the effort needed at tax time. Meanwhile, I ran across this link, FWIW:
http://www.geocities.com/WallStreet/Fund/4648/att-info/

Per a recent telecon w/ the IRS, they confirmed that declaring the fractional shares proceeds as long term gains against an "unknown" cost basis was acceptable. I figured the extra taxes are worth the time I saved. I hope they weren't joshin' me, and I SURE hope they didn't put a big asterisk next to my name!

Regards,
John
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<< Sure. Buy and hold individual stocks or low turnover index funds and don't automatically reinvest dividends. That's what I have come to after a year or two of hair-pulling with the tax man. >>

You bet. I also found out that you can't offset stock losses against 1099 mutual fund capital gains. I'm p*ssed.

Myself, I'm selling off a fund in one fell swoop. I can do this because, as I grew older, I put more money into fewer investments. So now that I'm putting 10K into a stock, selling the entire 6K of a fund doesn't have that much effect on the portfolio and is easier on the tax form. Not sure how well this will hold in retirement, but if I use galeno's 60-month cash plan, I think it'll work.


Washu! ^O^
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I called up the one mutual fund I had to ask them how I was supposed to figure out my basis, and they actually had it. This goes back about 8 years where I was contributing monthly. Very funny in that the capital gains have lowered my basis so that right now I would actually have a loss if I sold the fund. Since they have my basis, I am going to dump it later this year and see which way I need to offset it.

When Palm split from 3com the company actually told me what portion of my basis should be allocated to which stock. That was nice.

I need to go through and get documented on every stock I have, but so far have been too lazy. I somehow think my Yahoo stock tracking price is going to be enough if the IRS calls me on it. Only way to do it is to keep up with it as you go along.
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I agree the tax issue is certainly a pain in the <fill in a body part here>. I've avoided selling stocks to keep my taxes easier to do (this is a good thing for me).

One person's pain, can be another's profit. I wonder how many people would be willing to pay someone to do the work of figuring this stuff out for them. For example, would it be worth it to send your 30 years worth of info to someone and have them mull through it for $10 or $20/hour...and then send you back a spreadsheet with the data?

Also, does anyone know what the time frame is for making a mistake on your taxes. For example, you report a cost basis of $30 and it was really $20? I thought that it was 3 years...if it is not intentional???

justpatrick
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"Also, does anyone know what the time frame is for making a mistake on your taxes. For example, you report a cost basis of $30 and it was really $20? I thought that it was 3 years...if it is not intentional??? "

If worse case comes, and you are called for a full audit, you can admit you can't seem to find the paperwork anymore, and then agree to pay the extra tax on 20 or 30 bucks....of course, you can take about 15 minutes of their time shuffling through the six inches of paperwork you brought.....no one says how organized you have to be....if you come up with the 100 pieces of paperwork you need, but carry along another 1000, to look through, after you 'find' most of everything and it agrees, they aren't likely to figure they are going to extract extra money out of you.


Unless you get a very unlikely full audit where you have to dot every 'i', produce your birth certificate, marriage certificate, statements from every source of income, employment records, etc, the IRS people aren't going to be interested in spending 15 minutes of their time going after an extra 10 bucks in taxes....they have a 'quota' of raising thousands a day in extra taxes (that's what they are paid to find)...they go after the big stuff......they usually aren't going to be worried about $10 here and ten there...it is the ten thousand here and ten thousand there they are after. (if they get you for 10 bucks in 15 minutes, that is 77 cents a minute they are producing, hardly something to impress their boss).



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