Prove cost basis non covered MF shares (no records)

[badatmath]

I have a mutual fund STFBX for 30+ years which is currently administered by Northern Trust who does not print cost basis on the statement and I do not have all the records. (Probably the most recent 20 years, but not the first 10).

The last statement I had that did was from the previous administrator, in 2021 and it said

Cost basis election method – Avg cost
Covered 65.82
Noncovered 48.11.

I have not sold any before but considering doing so in Jan.

Will the 2021 statement from prior administrator be sufficient "proof" that 48.11 was a reasonable number to use as a basis?

If this looks sort of familiar question it should, I tried to ask it once before with even less info but at least I got it together a little better this time.

 

[MichaelB]

I have a mutual fund STFBX for 30+ years which is currently administered by Northern Trust who does not print cost basis on the statement and I do not have all the records. (Probably the most recent 20 years, but not the first 10).

The last statement I had that did was from the previous administrator, in 2021 and it said

Cost basis election method – Avg cost
Covered 65.82
Noncovered 48.11.

I have not sold any before but considering doing so in Jan.

Will the 2021 statement from prior administrator be sufficient "proof" that 48.11 was a reasonable number to use as a basis?

If this looks sort of familiar question it should, I tried to ask it once before with even less info but at least I got it together a little better this time.

The cost basis would be the sum of covered plus non-covered, or 113.93, and I think that statement would be a reasonable alternative to document the cost basis.

 

[badatmath]

The cost basis would be the sum of covered plus non-covered, or 113.93

Even if I didn't sell all of the shares? I think there is a limit how much I can sell in one trade, IDK for sure though.

And that means I am losing money? It is worth about $85 right now.

 

[Texas Proud]

I will say that I think MichaelB is mistaken....


Covered shares are what they say... covered... they have the cost basis and will report that as 65.82 per share



The uncovered they do not report but I would use what you have as the basis, or 48.11 per share....


The question is can you sell specific shares? IOW, can you specify you want to sell covered share only and let the report both bought and sold price...


Keep the uncovered till last and maybe have them reprice after you pass... then no need to worry about cost basis..

 

[badatmath]

I will say that I think MichaelB is mistaken....


Covered shares are what they say... covered... they have the cost basis and will report that as 65.82 per share



The uncovered they do not report but I would use what you have as the basis, or 48.11 per share....


The question is can you sell specific shares? IOW, can you specify you want to sell covered share only and let the report both bought and sold price...


Keep the uncovered till last and maybe have them reprice after you pass... then no need to worry about cost basis..

Oh I guess I have no idea what I can sell tbh. But that at least can be resolved with a phone call.

None of this stuff is online as far as old transactions - no one using internet access in 1990 . . .

 

[SecondCor521]

At most brokers you can change your cost basis method to specific ID, which will let you specify (before the trade executes) which shares you're selling. I think it's the best cost basis method, personally.

If you don't set your cost basis method, then the broker will have a default method, which may or may not be what you want.

And Texas Proud is correct and MichaelB is in error. The average cost for the noncovered shares is exactly that - the average price you paid for the shares that you bought before the date on which brokerages were required to start tracking basis for mutual funds. Similarly for the average cost for the covered shares.

It would be incorrect to add the two averages. What you could do is a weighted average, which would involve more multiplication and division. But that number would only tell you if you've made money or not across the whole investment, which you can probably get just by looking at your unrealized gain/loss screen on the broker's website and save yourself doing the math.

Even if they weren't required to track basis before a certain date, many brokerages do anyway. It's possible, even likely, that if you sell some of the noncovered shares, that they'll report a basis to the IRS and to you on your 1099-B that they send you in January.

If they only track the average basis for the noncovered shares - unlikely but possible, then if you sell any shares using average cost basis, you'll be required to use average cost basis for all shares of that mutual fund forever. Average cost basis usually isn't that great to use.

If you don't want to deal with basis concerns, you can keep them until you die, at which point they would get a step up and get a new basis. Or you can donate them to charity; you'll get a charitable deduction for the FMV on the date of the donation (as long as you've held them for more than a year), and the charity gets that FMV as their basis so they can sell without much if any capital gains.

You can call your broker and ask about all these things.

...

To answer the question you actually asked, the best thing would be to rely on your broker's 1099-B in January as long as it seems correct. The IRS only requires you to keep records of your cost basis, and even though brokers track it for you the burden actually falls on the taxpayer to provide the proper basis numbers on your return.

If the broker's 1099-B isn't right or doesn't provide a cost basis, then you can rely on whatever records you have. If you know that the shares you end up selling were all noncovered shares which you purchased before that 2021 statement, and there haven't been any stock splits or spinoffs or other repricing (would be highly unusual for a mutual fund), then it would seem reasonable to use that number.

The IRS even allows people to reconstruct cost basis using any reasonable method: you might buy $500 a month of mutual fund ABCDX for five years, so you take that amount and divide it by the 15th of the month closing price and use that, for example. Using that 2021 statement would fall into this category.

If all of that fails, then you can always legally use $0 as a cost basis, although that will have you overpay on taxes obviously. (It's better than felony tax evasion though.)

 

[badatmath]

At most brokers you can change your cost basis method to specific ID, which will let you specify (before the trade executes) which shares you're selling. I think it's the best cost basis method, personally.

If you don't set your cost basis method, then the broker will have a default method, which may or may not be what you want.

And Texas Proud is correct and MichaelB is in error. The average cost for the noncovered shares is exactly that - the average price you paid for the shares that you bought before the date on which brokerages were required to start tracking basis for mutual funds. Similarly for the average cost for the covered shares.

It would be incorrect to add the two averages. What you could do is a weighted average, which would involve more multiplication and division. But that number would only tell you if you've made money or not across the whole investment, which you can probably get just by looking at your unrealized gain/loss screen on the broker's website and save yourself doing the math.

Even if they weren't required to track basis before a certain date, many brokerages do anyway. It's possible, even likely, that if you sell some of the noncovered shares, that they'll report a basis to the IRS and to you on your 1099-B that they send you in January.

If they only track the average basis for the noncovered shares - unlikely but possible, then if you sell any shares using average cost basis, you'll be required to use average cost basis for all shares of that mutual fund forever. Average cost basis usually isn't that great to use.

If you don't want to deal with basis concerns, you can keep them until you die, at which point they would get a step up and get a new basis. Or you can donate them to charity; you'll get a charitable deduction for the FMV on the date of the donation (as long as you've held them for more than a year), and the charity gets that FMV as their basis so they can sell without much if any capital gains.

You can call your broker and ask about all these things.

...

To answer the question you actually asked, the best thing would be to rely on your broker's 1099-B in January as long as it seems correct. The IRS only requires you to keep records of your cost basis, and even though brokers track it for you the burden actually falls on the taxpayer to provide the proper basis numbers on your return.

If the broker's 1099-B isn't right or doesn't provide a cost basis, then you can rely on whatever records you have. If you know that the shares you end up selling were all noncovered shares which you purchased before that 2021 statement, and there haven't been any stock splits or spinoffs or other repricing (would be highly unusual for a mutual fund), then it would seem reasonable to use that number.

The IRS even allows people to reconstruct cost basis using any reasonable method: you might buy $500 a month of mutual fund ABCDX for five years, so you take that amount and divide it by the 15th of the month closing price and use that, for example. Using that 2021 statement would fall into this category.

If all of that fails, then you can always legally use $0 as a cost basis, although that will have you overpay on taxes obviously. (It's better than felony tax evasion though.)

Thank you, SecondCor521.

I don't have online access and it is not a real "broker" for common people right? I think Northern Trust is like a bank? I had asked about signing for access before and they wanted me to deal with an insurance agent and all sorts of crap I did not want to do so not sure it is really the best choice to get it now.

But I do plan to call them and will ask more questions. I have only had NT 1.5 years but the statements are sort of a shadow of their former selves so I do not expect to get a ton of information.

So do you somehow think I can use a method other than average cost (their default) if I lack the records to "prove" I got x shares on y date in 1992 at z price? I doubt very much they have that information to give me. I am not sure how many admins we had prior to this but I think more than 1.

I will need the money to live on so keeping them for heirs is a no go (though I had planned to keep them longer then next year) there are some other long winded reasons why selling some shares after Jan 1 2024 might be the way to go.

 

[SecondCor521]

Thank you, SecondCor521.

I don't have online access and it is not a real "broker" for common people right? I think Northern Trust is like a bank? I had asked about signing for access before and they wanted me to deal with an insurance agent and all sorts of crap I did not want to do so not sure it is really the best choice to get it now.

But I do plan to call them and will ask more questions. I have only had NT 1.5 years but the statements are sort of a shadow of their former selves so I do not expect to get a ton of information.

Northern Trust is a bank. But they have an affiliate, Northern Trust Securities, which is a real stock broker for people, common or otherwise:

https://www.northerntrust.com/united-states/what-we-do/wealth-management/brokerage-services

Generally speaking, banks can't provide investment services. This is due to an old law. People using banks want to know their money is 100% safe; investments sometimes lose value. So the government said banks can't do investments.

If you don't like NT, you can probably move your investments (without selling them) to Vanguard, Fidelity, or Schwab and might be much happier long term.

So do you somehow think I can use a method other than average cost (their default) if I lack the records to "prove" I got x shares on y date in 1992 at z price? I doubt very much they have that information to give me. I am not sure how many admins we had prior to this but I think more than 1.

I will need the money to live on so keeping them for heirs is a no go (though I had planned to keep them longer then next year) there are some other long winded reasons why selling some shares after Jan 1 2024 might be the way to go.

The IRS says (essentially) you have to identify the shares that you are selling to the broker before you sell.

Yes, you can use a cost basis method other than average cost. Most brokers support different cost basis methods. If you don't pick, they'll default to something. It sounds like NT's might be average cost basis. You should pick a method before you sell.

The cost basis method you choose (again, hopefully before selling) will then determine which shares will be sold when you do go to sell. For example, if the method is FIFO and you sell, the first shares will be sold. If the method is LIFO and you sell, then the last shares will be sold.

Once you sell, you need to report the correct basis for whatever shares are sold (first, last, January 2004 shares, whatever). This will be whatever you paid for those shares. It's ideal if the broker tracks it for you properly, but if not, then as mentioned you can use whatever documentation you have as long as it's honest and as accurate as you can be, and as long as you are logically consistent. For example, you *could not* sell your covered shares and use your non-covered share basis, and you *could not* sell more than the number of uncovered shares you own and use the uncovered share price for all of them.

Average cost method is a bit weird, though. If you start selling average cost, then they will average the cost of all your shares (total paid $ / total shares). So you might sell 10 of the oldest shares that you actually paid $30 for, so your actual basis is $300. But if your average purchase price is $45 per share and you sell 10 of those oldest shares and are using average cost basis, then you would report a basis of $450. Because this distorts things on the first sale (the basis is $150 too high), it used to be that you had to use average cost for the entire investment once you start. It appears from the IRS rules that this is no longer the case, but I honestly don't know how that works. (And I don't care - I use specific ID as a cost basis method on everything.)

 

[badatmath]

Thanks, SecondCor521. I don't see how I can use specific id with no statements to back myself up for the earliest years but I will see what NT says. Back then I was buying every payday so there would be at least 26 transactions per year I think.

 

[Texas Proud]

Thanks, SecondCor521. I don't see how I can use specific id with no statements to back myself up for the earliest years but I will see what NT says. Back then I was buying every payday so there would be at least 26 transactions per year I think.

I would agree that without records you do have a problem showing cost basis...


Also, if you have sold before and used avg cost you are supposed to continue with avg cost...


Curious, what security are you talking about?

 

[badatmath]

Haven't sold before. STFBX. I choose it because it was the lowest minimum investment thing I could find and I was 22 . . .
I mostly ignore it obviously but I will need to sell some to generate income in 2024.

 

[pb4uski]

I have a mutual fund STFBX for 30+ years which is currently administered by Northern Trust who does not print cost basis on the statement and I do not have all the records. (Probably the most recent 20 years, but not the first 10).

The last statement I had that did was from the previous administrator, in 2021 and it said

Cost basis election method – Avg cost
Covered 65.82
Noncovered 48.11.

I have not sold any before but considering doing so in Jan.

Will the 2021 statement from prior administrator be sufficient "proof" that 48.11 was a reasonable number to use as a basis?

If this looks sort of familiar question it should, I tried to ask it once before with even less info but at least I got it together a little better this time.

If this potential sale would be taxed at 0% then there is no sense to fretting about the basis at all. Or perhaps you can split the sale so the non-covered shares are 0% taxed.

Am I understanding you correctly that NT is saying that for covered shares the basis based on average cost is $65.82/share and that the average cost basis for non-covered shares is $48.11/share? If so, I would use whatever Northern Trust provides you since you do not have any better information that can be used as evidence. And just cross your fingers that the various custodians over the years have keep track of the non-covered shares basis correctly.

 

[badatmath]

If this potential sale would be taxed at 0% then there is no sense to fretting about the basis at all. Or perhaps you can split the sale so the non-covered shares are 0% taxed.

Am I understanding you correctly that NT is saying that for covered shares the basis based on average cost is $65.82/share and that the average cost basis for non-covered shares is $48.11/share? If so, I would use whatever Northern Trust provides you since you do not have any better information that can be used as evidence. And just cross your fingers that the various custodians over the years have keep track of the non-covered shares basis correctly.

NT has not told me the basis but that is what the prior administrator gave me in 2021.

It is possible I will have other income in 2024 even though not currently planned now (start taking pension, inheritance, etc).

I was going to call this morning but been on hold with another company for different issue for over an hour and losing my appetite to chat. I wish places actually hired enough staff for the workload. . .

 

[badatmath]

Update: they had the $48.11 and offered to research old statements I said not at this time.

So basically if I understand correctly I need to sell say 176 shares in Jan. 176 shares at 82 per share (just a guess/will be a dividend in Dec)

~$14,432 (total) incoming to me
And price - cost basis = what counts towards gross income?
82.00-48.11 = $33.89 per share x 176 shares = $5964.64 toward my gross income?

We are working towards "single taxpayer under 65 must file a return for income of $12,950". I should have some other dividends/interest perhaps 8K (it varies).

This is a bit of a nuisance really. . . . Hmm.

 

[SecondCor521]

The 0% tax rate pb4uski making basis a non-issue is only part of the picture. The basis you use will affect the capital gains number on your tax return, which will affect your AGI, which could affect state income taxes, ACA subsidies, and IRMAA if any of those apply to you. It would also affect provisional income, which would affect taxability of SS, if that applies to you.

I've been giving sort of a technical and complete answer, but truthfully, if you use whatever is on your 1099-B and/or make your best effort, the IRS will almost certainly not care or investigate. They're more understaffed than the company you called this morning, and I believe the budget for the 87K agents recently got nixed.

As a secondary thing and maybe you don't want to bother with it, but providing basis, even for non-covered shares, seems like a pretty basic thing a broker should do. I'd suggest transferring the shares to a broker that does provide them, but if NT doesn't have the basis, the new broker wouldn't either.

I suspect NT does have basis information, they're just not good at providing it to you easily.

I agree with pb4uski's comment that you could just sell non-covered, use the $48.11 number, and call it a day.

 

[SecondCor521]

Update: they had the $48.11 and offered to research old statements I said not at this time.

So basically if I understand correctly I need to sell say 176 shares in Jan. 176 shares at 82 per share (just a guess/will be a dividend in Dec)

~$14,432K (total) incoming to me
And price - cost basis = what counts towards gross income?
82.00-48.11 = $33.89 per share x 176 shares = $5964.64 toward my gross income?

We are working towards "single taxpayer under 65 must file a return for income of $12,950". I should have some other dividends/interest perhaps 8K (it varies).

This is a bit of a nuisance really. . . . Hmm.

Other than the obviously extraneous "K" - you're getting fourteen thousand in proceeds, not fourteen million - yes you have the math and concept correct.

Are you trying to not have to file a 2024 federal return at all? Heads up if you receive ACA subsidies (and therefore receive a 1095-A), you'll have to file even if your income is under the $12950 threshold.

 

[pb4uski]

Update: they had the $48.11 and offered to research old statements I said not at this time.

So basically if I understand correctly I need to sell say 176 shares in Jan. 176 shares at 82 per share (just a guess/will be a dividend in Dec)

~$14,432K (total) incoming to me
And price - cost basis = what counts towards gross income?
82.00-48.11 = $33.89 per share x 176 shares = $5964.64 toward my gross income?

We are working towards "single taxpayer under 65 must file a return for income of $12,950". I should have some other dividends/interest perhaps 8K (it varies).

This is a bit of a nuisance really. . . . Hmm.

It is important to know how much of the $8,000 of dividends and interest are qualified dividends. Given the perameters that you describe, any qualified dividends and LTCG would be tax-free... so even if you made the basis $0 and had $14,432 of LTCG and 1/2 of the $8k of dividends and interest were qualified dividends your tax would still be $0.

The standard deduction for a single under 65 for 2023 is $13,850. If 1/2 of the $8k of dividends and interest were interest then you would still have $9,850 of headroom for no tax Roth conversions from tax-deferred accounts. No brainer!

https://www.irscalculators.com/tax-calculator

 

[badatmath]

Other than the obviously extraneous "K" - you're getting fourteen thousand in proceeds, not fourteen million - yes you have the math and concept correct.

Are you trying to not have to file a 2024 federal return at all? Heads up if you receive ACA subsidies (and therefore receive a 1095-A), you'll have to file even if your income is under the $12950 threshold.

Oops extra K. I was gonna put 14K at first.

No the main goal is to make sure I have to file a return. No ACA. I just don't want to have a blank tax year so to speak.

I had been thinking to live off savings which is not "income" but now adjusting that plan (in theory). Not usually a great planner so this is a struggle.

I got time to think about it some more provided I am headed on the right path.

 

[SecondCor521]

Oops extra K. I was gonna put 14K at first.

No the main goal is to make sure I have to file a return. No ACA. I just don't want to have a blank tax year so to speak.

I had been thinking to live off savings which is not "income" but now adjusting that plan (in theory). Not usually a great planner so this is a struggle.

I got time to think about it some more provided I am headed on the right path.

You are permitted to file a federal return even if the IRS rules do not require you to.

Therefore, there is no reason to achieve any particular income number in order to file a return.

The IRS will accept and record an "optional" return in exactly the same way as a "required" return.

One benefit of filing a return even if not required is that it does somewhat reduce the risk of tax identity theft where someone files a false return using your SSN.

 

[pb4uski]

Once you start SS and any pensions and RMDs do you expect to be paying taxes? And if so, at what rate on the RMDs (IOW, what will be the increased tax caused by the RMDs in relation to the RMD amount)?

If you do expect to be paying taxes once any pensions, SS and RMDs start then this would be an ideal time to do either no-tax or low-tax Roth conversions.

 

[badatmath]

It is important to know how much of the $8,000 of dividends and interest are qualified dividends. Given the perameters that you describe, any qualified dividends and LTCG would be tax-free... so even if you made the basis $0 and had $14,432 of LTCG and 1/2 of the $8k of dividends and interest were qualified dividends your tax would still be $0.

The standard deduction for a single under 65 for 2023 is $13,850. If 1/2 of the $8k of dividends and interest were interest then you would still have $9,850 of headroom for no tax Roth conversions from tax-deferred accounts. No brainer!

https://www.irscalculators.com/tax-calculator

Yeah good points too. I won't know how much I might get really as it varies year to year. At least half would be qualified I think. And I can't rule out scrapping this plan and taking my pension but it is a start!

 

[badatmath]

Once you start SS and any pensions and RMDs do you expect to be paying taxes? And if so, at what rate on the RMDs (IOW, what will be the increased tax caused by the RMDs in relation to the RMD amount)?

If you do expect to be paying taxes once any pensions, SS and RMDs start then this would be an ideal time to do either no-tax or low-tax Roth conversions.

Yes I will some real tax on pension and SS. 22% I suppose?

RMDs have not really crossed my mind. I would assume I will have an inherited IRA at some point too if I live long enough.

Humbly grateful I have you guys to ask questions of as they occur to me.

 

[pb4uski]

If you really expect that RMDs will be taxed at 22% or more then I would serioudly consider Roth conversions to the top of the 12% tax bracket. IMO better to pay 8% or so now rather than 22% or more later.

If you went to the top of the 12% tax bracket and had $4k of interest income I think you could convert about $36k a year and pay less than $3K in tax based on what you have told us.

 

[badatmath]

If you really expect that RMDs will be taxed at 22% or more then I would serioudly consider Roth conversions to the top of the 12% tax bracket. IMO better to pay 8% or so now rather than 22% or more later.

If you went to the top of the 12% tax bracket and had $4k of interest income I think you could convert about $36k a year and pay less than $3K in tax based on what you have told us.

Can conversions be shoved into my existing ROTH IRA?

 

[pb4uski]

Yes, you transfer either securities or money from your existing IRA to your existing Roth IRA. If securities are transferred then the Roth conversion is measured based on the fair value of the securities transferred on the date transferred.

It is best to pay the taxes from after-tax money.