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Which accounting method (tax purposes) do you choose and why?
Old 05-22-2013, 04:18 PM   #1
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Which accounting method (tax purposes) do you choose and why?

When buying ETFs or stocks, which accounting method do you choose and why?

I was going to chose one that calculated some sort of average (I believe that was an option), but after some research I opted to choose the specific ID method for all of my ETFs.

My rationale is that I will have more control over which capital gains I want to realize and how much (from a tax standpoint) should I sell, re-balance, etc. Vanguard makes it easy with their yearend forms and online cost basis calculators anyway.
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Old 05-22-2013, 04:51 PM   #2
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I have always used specific ID. It isn't that much work and it allowed me to harvest losses on specific lots along the way.
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Old 05-22-2013, 04:58 PM   #3
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In the past, I used avg cost... it was calculated by Vanguard and made it easy...

Now, I use specific lot... since Vanguard has to keep all that info, all I have to do is click which shares I want to sell.... still easy for me...
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Old 05-22-2013, 05:02 PM   #4
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Quote:
Originally Posted by Texas Proud View Post
In the past, I used avg cost... it was calculated by Vanguard and made it easy...

Now, I use specific lot... since Vanguard has to keep all that info, all I have to do is click which shares I want to sell.... still easy for me...
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Old 05-22-2013, 05:09 PM   #5
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Originally Posted by Texas Proud View Post
In the past, I used avg cost... it was calculated by Vanguard and made it easy...

Now, I use specific lot... since Vanguard has to keep all that info, all I have to do is click which shares I want to sell.... still easy for me...
I use average cost for mutual fund shares (Fidelity kind of set it up that way) and specific lot ID for stocks. I'm not sure what I'll do when I buy ETFs - maybe follow what I do with stocks.

I do like the convenience of average share basis for mutual funds. I own very few stocks, and many mutual funds.
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Old 05-22-2013, 05:28 PM   #6
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I use FIFO (First In, First Out) for my mutual fund shares. It has always been simple to set up in my spreadsheets and it maximizes my chance to use long-term cap gains rates instead of short-term ones.
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Old 05-22-2013, 05:40 PM   #7
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I've been using FIFO for all the ~40 years I've had mutual funds. Don't think average cost was an option in the 1970s and 1980s. Besides, my financial software is all set up to track FIFO so piece of cake.
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Old 05-22-2013, 07:19 PM   #8
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We have always used specific ID (well at least since 1982). If we sell something, we just pencil through those shares in the annual statements of transactions that we have kept. We don't always sell FIFO because that does not usually give the best tax-loss harvesting opportunity.

Every so often, we get to reboot our investments (1987, 2000, 2008) without much in the way of tax consequences, so record-keeping is simplified. Plus it helps to have something like Quicken or MSMoney. But nowadays a good broker allows all the specific ID tools you need.
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Old 05-23-2013, 09:56 PM   #9
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Always used specific ID when possible, and signed up for that with everyone for 2012 and beyond. I had to use FIFO for some fund companies with no way to specify which shares to sell prior to 2012, since it was either that or average cost as IRS defaults.
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Old 05-23-2013, 10:26 PM   #10
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Originally Posted by Texas Proud View Post
In the past, I used avg cost... it was calculated by Vanguard and made it easy...

Now, I use specific lot... since Vanguard has to keep all that info, all I have to do is click which shares I want to sell.... still easy for me...
+1. Here's an recent thread we had on this subject. The new way that the fund companies and brokers have to show the cost basis for specific shares is a boon to lazy folks like me who couldn't be bothered in the past to track all those shares. Now it's easy because the broker does it and you just pick from a menu of shares you bought when it's time to sell.
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