Selling Taxable Account – Limited Documentation for Taxes

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DJCLUE
Posts: 2
Joined: Wed Jul 11, 2018 3:20 pm

Selling Taxable Account – Limited Documentation for Taxes

Post by DJCLUE » Wed Jul 11, 2018 4:14 pm

I have a taxable account with Janus that contains 4 mutual funds (I can edit post if the actual mutual funds would influence your answer). The account has approximately $30,000. I am wanting to cash out this account because, with a very high probability, I will be buying a house in 3 years, and would use it for part of the down payment. I will also be in a much higher tax bracket in 3 years (currently 24 % bracket).
This account was a custodial account that I received access to in 2011 and just let sit.
I do not know the exact time that the account was started, but somewhere around the time I was 10-13 (I am now 29 so probably in the early 2000s). I do not know the amounts that were invested or when they were invested. On the brokerage site, I have tax returns and statements dating back to 2011, and no external money was added since then, but dividends have been reinvested continually. Since 2011, the value of the account has increased approximately 40 percent.

I have multiple Questions:

1) Is this a good idea? My reasoning is that I know I will need the money in three years, and know I will be in a higher tax bracket at that time. Also, I want to move the money into CDs or T-Bills to lower risk of the value going down within 3 years.

2) In preparing to sell this account, it seems like it may be a nightmare because of lack of documentation and cost basis information. I have been looking at my online statements, where covered, uncovered, and average cost-basis is listed. I have researched these terms as well as “SpecID” or changing the way cost basis is calculated, but I am not sure how it helps me. I want to make sure I am not going to make a large tax mistake, and am wondering what happens at tax time after I close the account. Will I get a tax form that uses the “average cost basis” for the funds, which is correct and easy to plug into online tax software or will the cost basis for uncovered shares be listed as zero, and I have to do my best to figure out when money was actually invested to determine the cost basis?

Basically, I have never sold or closed a taxable account before, and do not know what to expect. Thanks!

increment
Posts: 17
Joined: Tue May 15, 2018 2:20 pm

Re: Selling Taxable Account – Limited Documentation for Taxes

Post by increment » Wed Jul 11, 2018 5:19 pm

what happens at tax time after I close the account. Will I get a tax form that uses the “average cost basis” for the funds, which is correct and easy to plug into online tax software or will the cost basis for uncovered shares be listed as zero, and I have to do my best to figure out when money was actually invested to determine the cost basis?
I expect the latter.

From my experience with Schwab, in February or March you should expect a 1099-B form with (up to) three types of entries: (1) transactions for which basis is reported to the IRS, (2) transactions for which they tell you a basis but it is not reported to the IRS, and (3) transactions for which they don't tell you a basis. (The first type you enter on a Form 8949 with box D (or A) checked; the others on a Form 8949 with box E (or B) checked.)

Prior to a tax law from the early years of the Obama administration, companies were not required to report bases, so keeping track was your problem.

RickBoglehead
Posts: 655
Joined: Wed Feb 14, 2018 9:10 am

Re: Selling Taxable Account – Limited Documentation for Taxes

Post by RickBoglehead » Wed Jul 11, 2018 5:53 pm

If you're selling all holdings, as you indicated, the cost method is totally irrelevant. It only matters for partial sales where the cost of the shares you are selling is something you want control over.

If you don't know the cost basis, and Janus doesn't, then preparing your taxes will be challenging. It is your responsibility to know it, not theirs.

Since it is all long term capital gains, you will be taxed at zero, 15, or 20 percent depending on your income level.

not4me
Posts: 399
Joined: Thu May 25, 2017 3:08 pm

Re: Selling Taxable Account – Limited Documentation for Taxes

Post by not4me » Thu Jul 12, 2018 12:49 pm

2011 was about the time that companies started distinguishing between covered & non-covered. Different types of assets & different type of companies changed at different times & in different ways. I've not dealt directly with "real" custodial accounts nor held any account directly at Janus; so, either of those could cause differences.

I would call Janus & ask. I think it is fairly common for them to have the cost basis (particularly assuming account first opened there & not transferred in) on the non-covered shares. They likely will report it to you on a 1099 -- they just don't report it to IRS. I'd confirm that they have that & ensure the "average" you are seeing includes non-covered shares as well as covered. If so & you sell all at the same time, you've got what you need.

Since you aren't accustomed to this, I'll mention a small consideration involving your re-investment. When you sell, you'll owe long term capital gains tax on those shares you've held over a year. When you reinvest a distribution, it not only changes your cost basis, but also the holding period for those shares. That is, say your fund had a quarterly distribution at the end of March & by reinvesting you buy 1.2 additional shares. And then you sell all shares on July 12. You owe short term capital gains (or loss) on the 1.2 shares...Also note that it may be in your better interest to sell before the record date for another distribution.

DJCLUE
Posts: 2
Joined: Wed Jul 11, 2018 3:20 pm

Re: Selling Taxable Account – Limited Documentation for Taxes

Post by DJCLUE » Thu Jul 12, 2018 2:53 pm

Thanks for the responses!

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