<p>I am planning to consolidate/reduce my mutual fund accounts and to sell a couple of smaller ones in 2015. I started the funds in the early 90's and stopped contributing in mid 2000's due to other financial needs. I did all of them through dollar cost averaging over the years. They sure had their ups and downs in the last 20 years.</p>
<p>Questions for all financial experts on CC:</p>
<ol>
<li>I have not sold any shares of any mutual funds since acquisition. Do I still have a chance to change the cost basis method BEFORE I redeem or sell any shares if I want to? Average cost seems to be the easiest and the default for most funds.</li>
<li>For some mutual funds, cost basis for non-covered shares is not provided, how do I calculate the cost basis?</li>
<li>For those that provide cost basis for non-covered shares, do they include all the capital gain distributions over the years in that cost basis?</li>
<li>Are we paying capital gain tax twice? On annual distribution and upon redemption?</li>
</ol>
<p>I read through some articles, I am still lost, I am hoping you experts on CC can share your knowledge on the subject in layman's terms.</p>
<p>If you do your accounting correctly you are not paying capital gains twice. If you are selling all shares of a fund your cost basis for the position will be the amount you paid for purchasing those share, including any reinvested dividends. Reinvesting dividends is convenient, but makes calculating basis and thus taxable capital gains messy in taxable accounts. I therefore usually have dividends routinely reinvested only in my tax sheltered accounts. YMMV</p>
<p>You can change your cost basis method anytime before sale. Check with the fund company, they usually require that change in writing. There is no double taxation. Your reinvested capital gains increase your basis, thus lowering your taxable gain upon sale. Generally the fund company will provide cost basis even for non-covered shares. If not, you can dig through your records to add up your investments plus reinvestments to determine your basis. Or, you can do what many people do in that situation–make up a number. Unless it’s a very large amount involved, a reasonable estimate is not likely to red flag an audit. Of course, consult your tax advisor.</p>