Computing the capital gains on a sale of mutual-fund shares can be a monumental task.
But take comfort: More and more fund companies are volunteering to help you find your way out.The task is complicated if you reinvest dividends and take advantage of dollar-cost averaging by investing in a fund each month.
At the end of 10 years you might have purchased shares at 160 different prices.
If you sell some shares, the big question at tax time is, What was your purchase price?
From the taxpayer's point of view, the least costly route is to report to the Internal Revenue Service that you sold the highest-priced shares first. That will reduce your profit or maximize your tax-deductible loss. Either way, you save money.
However, only shareholders who have records of every purchase can embark on this method of tax computation.
What if your records are incomplete?
Some funds can summon up all the sales data on an account. And more and more funds can provide shareholders with the average cost basis, which is rapidly becoming the standard method of computing capital gains from the sale of mutual-fund shares.
The fund simply divides the total price you've paid by the number of shares you own to arrive at an average cost per share.
Subtract the average price from the sale price to determine your capital gain or loss per share.
A few fund families automatically send average-cost-basis information to investors who have redeemed shares. Among those that do is IDS, which includes the data with its 1099 forms.
The Franklin fund family will provide the information on accounts that were opened in 1987 or later and that have had redemptions in the past year.
Invesco will automatically send the information to shareholders who have opened accounts and made transactions since 1991 and will provide the information on older accounts on request.
Many other fund families provide average-cost-basis information when asked.
But don't wait until April 1 to ask, says Legg Mason spokesman Tal Daley, "because everyone and their grandmother calls that day."
Within a few years, it's expected that the federal government will require all mutual funds to provide average-cost-basis information to their shareholders.
Rates At A Glance
6-mo. CDs 4.64%
1-yr. CDs 5.45%
18-mo. CDs 5.58%
2-yr. CDs 6.00%
30-mo. CDs 6.04%
3 1/2-yr. CDs 6.20%
Money market acct. 2.87%
Money market funds 5.00
Mortgages and Loans
30-yr. fixed mort. 9.33%
15-yr. fixed mort. 8.99%
Adjustable mort. 6.84%
FHA-insured mort. 9.42%
Home improv. loans 9.32%
Installment loans 14.63%
48-mo. auto loans 8.47%
RV/marine loans 10.70%
Fed. funds 5.27%
Prime rate 8.50%
Discount rate 4.75%
90-day T-bill 5.69%
6-mo. T-bill 6.51%
1-yr. T-bill 7.24%
2-yr. T-note 7.53%
30-yr. T-bond 7.83%
Source: Bloomberg Financial and R 1994, The Meyers Report-Chicago