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Thread: Need mutual fund book recommendation

  1. #1
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    Need mutual fund book recommendation

    We have mutual funds at Vanguard that are non-IRA that we keep as emergency funds. Every year at tax time, I get very confused about exchanges or sales made during the year and how they are taxed, figuring basis etc. Can someone recommend a book or website that explains in very plain language exactly how this all works? For example, I am not clear on why exchanges are taxed as sales and how to keep all that straight so as not to be over-taxed on future exchanges or sales.

  2. #2
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    It's Income Tax. There's nothing simple about it.

    List of tax forms you will receive from Vanguard if you are required to file them https://investor.vanguard.com/taxes/tax-forms/ The exception is: if you earned less than a certain amount in a particular category they don't have to issue a form for that income, but you still have to report the income. So be aware of that. In general, tax forms they send to you are also sent to the IRS. And fortunately most of those forms already have the cost basis, sales price, and other information already calculated (not like the good old days when you had to figure out all that stuff for yourself.

    Other useful tax info on the Vanguard website: https://investor.vanguard.com/taxes/tax-questions and https://investor.vanguard.com/investing/taxes/

    I only invest in stocks and options (no mutual funds) and I'm not an accountant, so my knowledge is limited to how a straight stocks-and-options brokerage account works. Mutual fund taxes are more complicated, but all the information you need should be somewhere on the Vanguard website or in documents they send you. It's the actual IRS 1040 sub-forms that are a bear to figure out. My advice on that is to go to a bookstore and browse the tax-prep books till you find one that has information about non-IRA mutual funds in it and is written in a style that makes it easy to understand. I figured out what I needed to know by reading the actual IRS how-to-do-your taxes documentation, but that took HOURS of reading and pondering and comparing.

  3. #3
    Senior Member iris lilies's Avatar
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    I just want to say good for you pinky toe. The tax implications of all of our investments are beyond me and I have decided I’m not gonna worry about the tax man any more. We’re going to live our life, spend money the way we like, draw down assets as we choose, and the tax will be what it will be.

    But certainly your approach is much wiser.

  4. #4
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    Yes ideally the mutual fund company (Vanguard in this case, but I don't know if they do) will figure all this all out for you pretty much, especially if you are fine just using "average cost basis/method" and you have this set up on the account, and it should be all figured out on the yearly tax forms they send.

    If not, then yea ugh. Taxable investments can get one into tax nightmares for sure (usually less about the tax owed than ever figuring out how much tax is even owed).
    If you want something to get done, ask a busy person. If you want them to have a nervous breakdown that is.

  5. #5
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    Another source of information about income tax on non-ira mutual funds https://www.investopedia.com/article...tual-funds.asp

    From the IRS website https://www.irs.gov/faqs/capital-gai...tributions-etc

    And back to Vanguard https://investor.vanguard.com/taxes/...asis/reporting "All sales of mutual funds, most exchange-traded funds (ETFs), and stocks will generate a Form 1099-B that provides detailed cost basis information to help you report capital gains and losses on your tax return. Although we'll include details for sales of both covered shares and noncovered shares only the cost basis information for sales of covered shares will be reported to the IRS. Cost basis for sales of noncovered shares will be reported solely to you."

    So it continues to sound like all the numbers you need are provided on the 1099-B form, unless you have complications like wash sales or shares that were bought before 2012. Any strategy or planning you could do to minimize taxes needs to be done ahead of time by designating a different method for figuring cost basis or by switching to a more tax-efficient mutual fund (basically a fund that doesn't buy and sell stocks as often, such as a broad-market index fund).

    And since I didn't say it before ---> Income Tax -- Here There Be Dragons!

    But once you figure out how to do it the first time, it's a lot easier in all the other years after that.

  6. #6
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    Thanks! The Vanguard site has too much info!! Some of the funds were purchased in 2010 and exchanges have been made since. Luckily, not a great deal of money to worry about. Just drives me nuts when I don't understand things fully.

  7. #7
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    Quote Originally Posted by pinkytoe View Post
    Just drives me nuts when I don't understand things fully.
    NUTS???? I love nuts! Which tree are they in?

    squirrel.jpg

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