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New to taxable accounts, how does the tax work?

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  • New to taxable accounts, how does the tax work?

    Hello, I'm a soon to be graduating EM resident here trying to get my ducks in a row before starting fellowship. I am already maxing personal and spousal Roth IRAs (will continue to do so since I won't have a salary hike...) as well as our employer retirement offerings. I have a taxable account that was started by parents which I recently took ownership of. The mutual fund owned in this account is actively managed and has a high expense ratio so I'm trying to get out of that and into a more reasonable fund.

    Between the omicron surge and the continued market volatility I have a decent amount of losses and will be able to tax loss harvest when I sell. How do I figure out what my cost basis will be when sold? The original investment was $2000 and I have had to pay taxes over the years on the distributions/capital gains and have always re-invested the dividends so the total is currently around $12,000 from it's high of $15,000 before the December downturn. If I have been paying the taxes throughout the account's lifetime, what additional cost will I incur when I sell the fund to buy another?

  • #2
    For any account after 2012 the mutual fund company keeps running trac of cost basis. How you get to that info is dependent on the customer interface, but it should be a simple display function.


    • #3
      What Larry Ragman said. Choose the option called "specific lot" or "Specific ID;" that will show you the purchase price, short-term gains/losses, and long-term gains/losses for each lot of shares purchased. If you sell only the ones which are showing a long-term loss, not only will you not owe anything, you will be able to deduct the loss from your taxes. But it's important that you put the sale proceeds in a fund that is reasonably different from what you are selling, and that you turn off automatic investments of dividends on the unwanted fund so no new shares of the old fund are purchased within 30 days of your sale. Otherwise you'll create a wash sale.


      • #4
        1) Find "print 1099" on broker website.
        2) Save 1099 as PDF or print and scan.
        3) Give or email to CPA.
        4) Done.


        • #5
          Since there has been a lot of growth in the value of your account over the years (2k cost to 12k current value), you may have a 10k capital gain when you sell. But capital gains tax is 0% when you have a low income. Therefore it would be a good idea to sell ASAP, while you still have a low enough annual income to avoid capital gains tax.


          • #6
            Long-term capital gains tax and short-term capital gains tax, capital gains tax triggers, how each is calculated & how to cut your tax bill.


            • #7
              Thanks for the responses everyone, very helpful information and I'll be applying the new info shortly when I sell!