Adding very old transactions (do I need to?)

Won't your mutual fund be providing that using a default method such as average cost per share when you sell and they provide you with the paperwork come tax time? You're not required to use it if you have documentation you can use for other methods (like directed shares), but it's the simplest way to do it, and at least you know you 'have got it right'. Downside, might not be the cheapest tax calculation, but since you don't know the cost basis now anyway, I wouldn't sweat it.

Check with them.

Hi, Ross.

"Pay me now...or pay me later!" (From an auto transmission repair commercial than ran on TV several years ago.)

You do need to determine your tax basis and holding period for the shares you sell. How you do it is your business. The IRS won't need to see your Quicken, or your spreadsheets. But those may be the most effective and - in the long run - the fastest and easiest ways to calculate your basis.

When I was a practicing public accountant, I did this sort of thing quite often. When all the documents were available, it was like a game, almost fun. When records were missing or incomplete, it was more work than fun. But I was getting paid by the hour.

You said this fund "was no longer active, just sitting and generating dividends". Were you reporting and paying taxes on those dividends each year? Did the cash from the dividends just sit in the fund as more Cash Balance? Or were the dividends re-invested in more shares each quarter, or whenever you received the dividends? Were ALL the dividends "ordinary income", or did they include long-term capital gains, too?

If all the dividends were properly reported each year, including classification as to capital gains, non-taxable, etc., and if all were re-invested automatically, then your basis - overall - would have been increased by the total of the dividends. Then all that's left to do is to divide your current shares between long-term and short-term for capital gains calculations. If you sell all your shares in a single transaction, you can just recalculate your basis to the point when you started proper recording in Quicken. But if you sell your shares piecemeal, then you will need to determine which shares are sold in each batch - and the basis and holding period for each batch.

If it were me (knowing my personality), I would start at the beginning. I might create a new Quicken file just for the purpose of determining the basis to the date when my main Quicken started, and use that data to update my actual Quicken file. But you are not me, so you'll have to decide how you will do it. Good luck!

I've been retired from public accounting for over 20 years and much of what I remember is out of date, so be sure to check with your own CPA before filing your return.

RC

-- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2012 Deluxe R 2 and Windows Live Mail in Win7 x64)

I bought Quicken several years after I opened this particular mutual fund (which in fact was no longer active, just sitting and generating dividends). Rather than go back enter every transaction from the beginning (8 years worth), I just started with the then-current balance. I'm now about to sell those shares off and I need to calculate my cost basis and realized that without those transactions Quicken won't have a prayer of being correct.

Do I need to enter the old transactions or can I just calculate the cost basis to that point in a spreadsheet, add what Quicken thinks is the current cost basis, then subtract the opening balance?

Actually, it was an oil filter company, Fram. You can watch one on line, if you desire...

Hi, Bruce.

Thanks for the correction and reminder. ; "Pay me now...or pay me later!" (From an auto transmission repair

Actually, it was an oil filter company, Fram. You can watch one on line, if you desire...

Oh, oh, what does that make those of us who remember that commercial?

R.C. - You sure this is true? If I ask a MF to sell 'x' shares and I have more left 'over', I don't have to determine this. Again, they'll send me (at the moment, the rules change in 2012) a statement using average cost per share that I can use if I wish. And once I start using one method, I believe I need to continue to use the same method in subquent sells of the same fund from the same account.

Hi, Andrew.

As I often remind here, I've been retired for more than 20 years - and tax rules change daily. So I always advise readers to check with their own CPA, who should be up to date with current tax laws and rules.

When I retired, the "average cost" method was not yet available, so the taxpayer had to choose LIFO or FIFO or specific identification - and stick with it, as you said. And to use specific identification, we would have to tell the fund manager, in writing, which batch should be sold. Reinvested dividends from mutual funds always created a large volume of transactions, with their (usually) quarterly dividends and purchases. Each individual dividend was not hard to record. But if 10 years of transactions had not been timely recorded, then it became a lengthy exercise to enter them all at once. When a client sold all shares in a single transaction, we still had to determine which shares had been purchased within the past 6 months (or the past year - rules changed at some point, which I've forgotten and would have to look up again) and separate those from long-term holdings. And when only part of the holdings were sold, the exercise got more complicated.

But I'd better excuse myself from this thread now. Twenty-year-old knowledge is OK for general discussion, but not for specific guidance.

RC

-- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2012 Deluxe R 2 and Windows Live Mail in Win7 x64)

R. C. White wrote:

R.C. - You sure this is true? If I ask a MF to sell 'x' shares and I have more left 'over', I don't have to determine this. Again, they'll send me (at the moment, the rules change in 2012) a statement using average cost per share that I can use if I wish. And once I start using one method, I believe I need to continue to use the same method in subquent sells of the same fund from the same account.

Thanks RC - you probably have forgotten more than I'll certainly ever know!

Well, for the record, here's a link:

1. The FIFO method First In-First Out assumes you first sell the shares you bought first. (The first person who gets on the bus is the first person to get off the bus.) This is the default method; the IRS (as well as your broker or mutual fund company) assumes you use this method unless you notify them otherwise.

1. The specific identification method You name which shares you are selling (you do this by referring to the date you acquired the shares to be sold). For this method to be successful, you must specify to the mutual fund company or to the advisor of record serving your account the particular shares to be sold, and you must do this at the time of sale. Furthermore, you must receive confirmation of your specification from your advisor in writing within a reasonable time, and the confirmation by the mutual-fund company must confirm that you instructed your advisor to sell particular shares.

2. The average cost single method (only available for mutual funds) Figure the tax on the average cost and the average profit from all your trade lots.

1. The average cost double method (only available for mutual funds) Separate the trade lots into two groups: those held one year or less and those held more than one year, and then figure the tax on the average of each group.

(end of Andrew's paste)

Looks like #1 is what shares the MF uses by default, not average cost as I said. Whatever - my big point was that THEY (the FI) handles the paperwork and even though it is indeed probably not the most tax advantageous method, I let them worry about calculating my cost basis!

(I probably don't want to know how much this might cost me!)

_____________________

Hi, Andrew.

That link is informative, but suffers from the same weaknesses as MY explanations. :>( It's better to go to the authoritative sources: Internal Revenue Code, Treasury pronouncements, court cases, etc. For example, Edelman omits LIFO altogether. And I don't think his "on/off the bus" analogy is very clear; entry/seating/exit on a bus is often quite random, not in any specific order.

FIFO is more like the way a merchant stocks his shelves or we arrange things in our refrigerator: we move the oldest (first-in) item to the front of the shelf so that it will be the next one we use. LIFO (Last In, First Out) is like a stack of dishes; we are most likely to use the one on top - which is the last one that was placed on the stack. (The "stack" is a standard tool of computer programmers who "push" items onto the stack and later "pop" off the top one; the analogy usually given is of dishes added to the spring-loaded stack in a cafeteria line. Accounting teachers have long likened LIFO to a coal dealer's supply, where the latest load received gets dumped onto the top of the pile and then gets sold first.)

The average cost methods for mutual funds (your #3 and #4) were not available until about the time I retired.

In a continuously-rising market, FIFO will produce the highest reportable gains by selecting the oldest shares, bought at the lowest prices. LIFO will show lower gains, but some of them will probably be short-term, which might produce a higher tax on a similar amount of gain. Good tax planning often requires more analysis and care than either of these ways might produce, so specific identification might produce the best results - for this year and next. This is especially true in an erratic market such as we've seen in the past decade.

Taxpayers and advisers usually concentrate on reducing THIS year's taxes, overlooking the effects on future years of this year's decisions. A taxpayer whose income over several years is level or climbing smoothly will pay a lot less in taxes than one whose taxable income level shows a saw tooth pattern of highs and lows, because of our progressive tax rates. One who has taxable income of $50,000 per year for 3 years will pay a LOT less than one who has $0, $50,000 and $100,000 - or $0, $150,000 and $0! The FI handling YOUR mutual fund has only a mild interest in how all this affects you. You and your own CPA should have a much greater interest in managing this.

Let's see, just for a quickie calculation...I no longer have good tax references at my elbow, but they are available online; we can start with the Tax Tables for 2010 at

That might even be enough to pay for advice from a good CPA who knows about YOUR personal situation, not just generic "tax tips" from a magazine column - or a newsgroup. ;^}

RC

-- R. C. White, CPA San Marcos, TX (Retired. No longer licensed to practice public accounting.) snipped-for-privacy@grandecom.net Microsoft Windows MVP (2002-2010) (Using Quicken 2012 Deluxe R 2 and Windows Live Mail in Win7 x64)

R. C. White wrote:

Thanks RC - you probably have forgotten more than I'll certainly ever know!

Well, for the record, here's a link:

1. The FIFO method First In-First Out assumes you first sell the shares you bought first. (The first person who gets on the bus is the first person to get off the bus.) This is the default method; the IRS (as well as your broker or mutual fund company) assumes you use this method unless you notify them otherwise.

1. The specific identification method You name which shares you are selling (you do this by referring to the date you acquired the shares to be sold). For this method to be successful, you must specify to the mutual fund company or to the advisor of record serving your account the particular shares to be sold, and you must do this at the time of sale. Furthermore, you must receive confirmation of your specification from your advisor in writing within a reasonable time, and the confirmation by the mutual-fund company must confirm that you instructed your advisor to sell particular shares.

2. The average cost single method (only available for mutual funds) Figure the tax on the average cost and the average profit from all your trade lots.

1. The average cost double method (only available for mutual funds) Separate the trade lots into two groups: those held one year or less and those held more than one year, and then figure the tax on the average of each group.

(end of Andrew's paste)

Looks like #1 is what shares the MF uses by default, not average cost as I said. Whatever - my big point was that THEY (the FI) handles the paperwork and even though it is indeed probably not the most tax advantageous method, I let them worry about calculating my cost basis!

(I probably don't want to know how much this might cost me!)

_____________________

Just got back from work, got an engagement to go to tonight, but I got to say I always LOVE your posts...got a lot to read here, learn, and think about. Thanks as always.

(Some of this assumes you're in the US)

Assuming that you've captured the cost basis for everything since that starting balance transaction, the transaction that holds your starting balance should have a field to capture the cost basis for the Added shares (Right-click that xctn & try to Edit it). If you have the luxury of an old statement that shows the cost basis for those shares on a "then current" statement, or if you already have the individual historical transactions (with each one's cost) in a spreadsheet, you should be able to determine what to enter in the cost field in Q. If you're looking at long-term/short-term implications for the shares you sold, you'll probably need two transactions to differentiate between LT/ST.

If you don't have that info and you need accurate figures in Q, you'll have to capture the info somewhere. The effort to capture the individual transactions in Q may not be that much more than entering them in a spreadsheet.

OTOH, unless you're really fond of Q's Tax Estimator or you're uploading your Q file to TurboTax, do you really need Q to have that cost basis? My tax profile doesn't fit Q's tax estimator & even when my profile was much simpler, I found myself spending more time fixing the TT import stuff that didn't work correctly than I would have just entering straight from tax forms.

My 2 cents, YMMV.