Stock/Bond Redemption methods

[Rianne]

VG told us they only have stock/bond records back to 2012. I must be naive, but how do they know what we bought stock funds at - going back to late 90's? And how do they keep track with 401K purchases before that? How do we know what's FIFO LIFO?

 

[LOL!]

When you started filing tax returns in your teens, you read the instructions and followed the directions. Those instructions pretty much said, "Keep all your annual statements in a safe place forever." So you have been doing that and just need to consult those records and you are all set.

The 2012 date is when financial institutions were required by law to report cost basis to the IRS. Your records are still available at Vanguard for you to get and read, but Vanguard does not need to report the cost basis of purchases made before 2012 to the IRS. That's up to you.

So I sense a miscommunication between what you are telling us and what Vanguard may or may not have told you.

 

[Rianne]

When you started filing tax returns in your teens, you read the instructions and followed the directions. Those instructions pretty much said, "Keep all your annual statements in a safe place forever." So you have been doing that and just need to consult those records and you are all set.

Seriously? Do people really do that? My birth certificate paper is so yellowed you can hardly read it.

 

[MRG]

Seriously? Do people really do that? My birth certificate paper is so yellowed you can hardly read it.

Yeah. Old stock certs are still good. As is a yellow birth cert.

 

[target2019]

We started a VG tax-free fund in 1990. When I view this, it computes avg cost basis. If we redeem, the cost basis VG provides will be good enough. We probably have cost basis info for LIFO etc., but will not go that route, for simplification.

 

[ERD50]

Seriously? Do people really do that? My birth certificate paper is so yellowed you can hardly read it.

Yes. It's the law. I always kept a record of purchase price of in my taxable accounts. Keep a copy with your current tax docs, updated each year if needed, so you don't need to dig back 30 years to find it.

But I think they should change the law. First, don't tax cap gains, so no record keeping required (but that will lead to a long discussion of alternative tax methods).

Second, require everyone to report their holdings and purchase price every year. At least then, you would only need to go to last years tax form to find the info.

Worst case, you can try to estimate it. After 30 years, your cost basis should be pretty low, so even if the IRS disallows it, you lose (likely) 15% of the difference.

You may also be able to take LTCG at 0%.

-ERD50

 

[njhowie]

No, most people really do not do that.

In the worst case, where you have no records pre-2012, you can work with what they provide to you. As best I can remember from last time I received tax statements for pre-2012 transactions, they will split things up into a section with the individual transactions post-2012, and then a single line for the pre-2012 which is just a summary - total number of shares and the overall cost basis (average share price). If you need to account for these pre-2012 shares with your income taxes, on Schedule D, you do not have to provide every individual transaction - you can enter a single line indicating "Various" for transaction dates and then provide the number of shares and the average/total cost basis.

Since the pre-2012 transactions are not reported to the IRS, the extremely high likelihood is that it is never going to come up as an issue. Don't sweat it.

 

[SecondCor521]

Seriously? Do people really do that? My birth certificate paper is so yellowed you can hardly read it.

Yes. I have done so for 40 years. But I'm in the minority, I'm sure - the misconception that the broker handles this for you is rampant. As is the "don't sweat it" approach, which I understand and use myself in certain situations other than this one.

 

[ERD50]

No, most people really do not do that. ...

Since the pre-2012 transactions are not reported to the IRS, the extremely high likelihood is that it is never going to come up as an issue. Don't sweat it.

She asked if people do that, not do "do most people do that". I don't have stats on "most" people. But I do it, and so do some others.

To the second part - from what I've heard from others, you don't need to sweat it, but if the IRS doesn't like your documentation or numbers, they will assume a cost basis of zero (all taxable). Up to you if you want to sweat that or not. As I said, it might not be a large amount delta. Or it might be!

-ERD50

 

[njhowie]

Second, require everyone to report their holdings and purchase price every year. At least then, you would only need to go to last years tax form to find the info.

How about we just simplify the entire income tax process. All financial institutions (including banks, brokerages, mortgage companies) would be required to (electronically) provide all pertinent tax-related records to the IRS annually. Employers similarly. With that, the IRS likely has all necessary information, and with the new caps on itemized deductions and increased standard deduction, probably 75% of all taxpayers are covered. The IRS simply sends you a pre-filled income tax statement with a refund check or an invoice to pay. If you disagree, then you can take the time to do your own taxes and file.

Imagine if only 25% of taxpayers needed to file. H&R Block would likely be out of business instantly. Intuit would likely be in trouble as well. A good portion of IRS auditors could also be eliminated.

 

[Rianne]

We've been re investing all these years. Every gain is re invested. Have not WD. How in the world could anyone keep track of that?

 

[RE2Boys]

Seriously? Do people really do that? My birth certificate paper is so yellowed you can hardly read it.

Of course some of us have always kept track of what they owned and knew enough of taxes that the information will be needed. Only time I ever had an issue knowing the basis was for the 10 shares of Union Carbide purchased by my parents in a UGMA account in 1970 (I was 20). Came across the paperwork when going through my Dad's papers after he passed away in 1992.

I find it incredulous, but not surprising, that many (most?) are clueless.

 

[RE2Boys]

We've been re investing all these years. Every gain is re invested. Have not WD. How in the world could anyone keep track of that?

I've been keeping track as long as I can remember, to do otherwise I knew I would be cheating myself.

Pre 1992 it was all on paper statements. Since 1992, I can pull it up instantly through the use of PC software. It's the primary reason I purchased a PC and home finance program in 1992 to keep track of investments (and it does a decent job of balancing the checkbook as a side benefit}.

 

[LOL!]

We've been re investing all these years. Every gain is re invested. Have not WD. How in the world could anyone keep track of that?

People who use Vanguard tell me ALL the TIME that Vanguard reports the average basis of their shares even if they are from before 2012 and "non-covered". Vanguard reports to me the average basis of my shares, too, but since I have my own records, I don't use it.

So for you:

Does Vanguard report the average basis or average cost of your shares? If so, then use that number. Note that when selling with average cost or average basis then IRS says you are first selling the earliest shares purchased as in FIFO. If you buy more shares either by adding money or by dividend reinvestment, then Vanguard will calculate a new average basis or average cost for your shares.

This is why I don't think it is a big deal for you and there is some miscommunication between you and Vanguard.

 

[jazz4cash]

OP mentioned 401ks but I can’t think of how they matter unless you somehow have basis on one. The biggest issue is reinvesting dividends in taxable accounts. That’s a real issue. For regular buys and sells I wouldn’t sweat over it. When I was very young and paying a CPA to do taxes he used an estimate of the purchase date to establish basis if the confirmation was not available. He had WSJ end of quarter stock reports in his file.

 

[LOL!]

We've been re investing all these years. Every gain is re invested. Have not WD. How in the world could anyone keep track of that?

Easy. Put a copy of your annual statement with your saved tax return each year.

In the pre-Internet, pre-Personal Computer days, Vanguard always sent a paper annual statement. I even think they already had the 3 holes punched in them to put in your ring binder.

 

[Rianne]

My DH response as I read posts to him..."see, I told you we should not throw anything away." We have 2 huge filing cabinets in the garage filled with paperwork.
Maybe, just maybe there are records in there, as I stare off into the distance thinking of a walk in the woods with my dog.

 

[Rianne]

Easy. Put a copy of your annual statement with your saved tax return each year.

In the pre-Internet, pre-Personal Computer days, Vanguard always sent a paper annual statement. I even think they already had the 3 holes punched in them to put in your ring binder.

There is a very good chance we have those. Thank you for that!

 

[LOL!]

I doubt you need those records though, since you have the Average Cost per Share right there when you login to your online Vanguard account.

 

[audreyh1]

Fidelity has kept the records for me since opening the account in the 1980s, and they agree with my own. I do keep an annual summary statement from every year. They are electronic now, but I have the old printouts.

 

[pb4uski]

I guess that I'm trying to understand the problem. To my knowledge, Vanguard tracks basis... pre some year is non-covered and after that is covered... so I would use that.

Also, IIRC the OP is managing MAGI for ACA so any LTCG would be 0% anyway.

So what is causing the concern/indignation?

At the end of the day the taxpayer is responsible for keeping records necessary to prepare their return... but if the OP uses what Vanguard provides I doubt that the IRS will challenge it. If the OP wants to use something different that what vanguard reports, then the us is on them to support it.

 

[clobber]

We've been re investing all these years. Every gain is re invested. Have not WD. How in the world could anyone keep track of that?

It's really not that hard. For example, T. Rowe Price sends an annual statement with all transactions for the year (sorted by fund). They include all the reinvestment and everything. Copy into a spreadsheet (or cut and paste).

Also - if you are not doing this, how do you track your own personal rate of return to know if you are making good investments? The reported return for each fund is most decidedly NOT your return, especially because you are doing all the automated reinvesting. Hint: Excel's XIRR function is amazing.

 

[donheff]

Like lots of people (most? Who knows.) I assumed the brokers were required to do it. It is such a PITA that they should have been required by law to warn you in bold statements about the consequences of failing to track the data. Especially with reinvested dividends. I learned the hard way when I transferred about $1M from a brokerage to Vanguard and discovered later that I didn't have cost basis. The data I got from the brokerage was pretty sketchy and I don't know how anyone could calculate FIFO from it. The nice thing is that I was able to enter my conclusion of the cost basis in Vanguard's DB that will be what they use for those funds when they report to IRS. Everything after that they calculate as required by law.

 

[LOL!]

[...]
The nice thing is that I was able to enter my conclusion of the cost basis in Vanguard's DB that will be what they use for those funds when they report to IRS. Everything after that they calculate as required by law.

I would be surprised if Vanguard reports that cost basis to the IRS at all. They will report it to you, but the cost basis of non-covered shares is not required to be reported to the IRS.

I know for a fact that Vanguard knows accurately the cost basis of the shares I have with them, but they have never reported the cost basis to the IRS when I have sold shares. Vanguard tells me the cost basis, but does not tell the IRS.

This is all explained really well in the IRS instructions to the tax forms, too.

 

[Alan]

I would be surprised if Vanguard reports that cost basis to the IRS at all. They will report it to you, but the cost basis of non-covered shares is not required to be reported to the IRS.

I know for a fact that Vanguard knows accurately the cost basis of the shares I have with them, but they have never reported the cost basis to the IRS when I have sold shares. Vanguard tells me the cost basis, but does not tell the IRS.

This is all explained really well in the IRS instructions to the tax forms, too.

In the 1099-B each year VG reports the date of sale and capital gain of each sale plus the purchase date, but if I happen to sell a number of shares with different purchase dates the statement leaves the purchase date blank, but to complete my tax return for my UK return I have to know the purchase date, which VG knows and I capture a screen shot of the relevant page on line. (The exchange rate on the dates of purchase and sale convert $s to £s)