Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I started these about 10 years ago, and each month I deposited money and purchased some shares of mutual funds. I have been paying taxes on the dividends, and distributions. From asking the board experts here, I learned that I will begin filing individual tax returns this year because the amount of dividends and distributions have exceeded certain amount. But, that is not my question today.

I know that's not your question, but with custodial accounts the money is the children's. It's usually better for the family for them to report any income on their own returns. If you do elect to report it on yours, there is a certain form (8516 or something like that - I'm too lazy to look it up at the moment) to calcualt the tax correctly. And if you have not filed that form, you have overpaid your taxes. You could amend the last three years to correct that error if necessary.

My question is, by the time we are ready to sell some of the mutual funds and withdraw cash for their colleges, do I need to go way back and start calculating the cost bases? I am afraid I have not kept all monthly statements for all these years.

Start dusting off the files. Ideally, you'll go back to the first purchase and start accumulating data. You need to inclue all of your purchases PLUS all of the reinvested dividends in your cost basis.

If you're lucky, the mutual fund will give you a year-end summary of all of your activity in the fund. So you'll only need to find one particular report. If you have most of the monthly statements, you could estimate the missing information. And one more option is to contact the mutual fund and see if they can provide the old statements. I've had some clients do that successfully for statements 10 to 15 years old.

And one more option that doesn't require any digging - stop contributing to these particular funds, and start in with some other fund. Then each year sell enough of the fund so that the purchase price is irrelevant. The kids can have something like $800 of income without paying any tax. If they have $200 of dividends, they can sell $600 worth of the fund and not have to prove any basis. This might not work if they have too much money and not enough time, but it's worth a thought. And once they get old enough to get out of the kiddie tax rules (currently that would be 18 or older), that $800 jumps up to something a bit over $3000.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.