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I'm thinking of selling some shares in my mutual fund. Anything I should watch out for, tax-wise?
Want to cash in your shares so you can buy a new sailboat or add a room to your house?
Here are some tips:
1. From the time you purchase a mutual fund, keep all of your records pertaining to purchases, dividends, and capital gains, as well as any return of capital. Organize these records from the earliest purchases to the latest purchases so you can easily determine which method to use in reporting your sale.
2. Study the four methods of reporting mutual fund sales to determine which is best for your situation. It may be to your advantage to talk with a professional tax planner for advice.
3. After you determine the method you will use and before you make the sale, contact your broker to be sure that the brokerage is willing to use the method you have selected and willing to give you any pertinent information you may need.
4. After you have made the sale, be sure to keep records of the remaining shares and the method you used, since you will have to use that method in future sales from that fund.
In mutual funds, as in most activities that have tax consequences, it is vital that you keep accurate records of every action you take. Those records could prove invaluable if you are audited.
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