How do I manage capital gains from multiple investing accounts containing the same mutual funds

jimnlesl

I am using Quicken 2013 and calculating capital gains considerable different than my brokerage firm. Is Quicken determining the cost basis using only the shares in the individual investing account or using all of the shares of the mutual fund owned across all accounts?

What is the best way to track shares across different accounts?

Mark1104

first, the brokerage firms approach is what is correct; that is controlled by reporting requirments to the IRS.

in Quicken, capital gains is determined by the order you buy securities and then the method you choose to indentify the lot to sell (specific, LIFO, FIFO, etc.) in the INDIVUDAL ACCOUNT.

Remember that cost basis in an IRA (TRAD or ROTH) doesn't matter as the security cost basis doesn't impact capital gains taxes. 

question: if the brokerage firm is tracking the cost basis and capital gains and that is what the IRS cares about, why worry about what the cost basis in Quicken is?

Tom Young

"Is Quicken determining the cost basis using only the shares in the individual investing account or using all of the shares of the mutual fund owned across all accounts?"

It calculates cost only based on the lots actually contained in the Account itself, it's not pulling information out of other Accounts with the same security.

If you're getting different capital gains amounts then the capital gains reported by the broker there's at least 2 different reasons for this, assuming that your initial basis in a security was correct:

1. The first reason, and the simplest to correct, is that you are using a different method than the broker to calculate cost, e.g., you're using LIFO and the broker is using FIFO or you're using specific lot identification vs. average cost.  Of course even this can be difficult to correct if you've had a lot of activity in a particular security over time - lots of buys and sells - as you need to go back and edit quite a few transactions to make them consistent with the broker.
2. The second reason for this is if you've had wash sale losses and haven't mimicked the broker's action in allocating the disallowed loss back to specific lots.  These kinds of transactions can be confusing since the allocation is more or less invisible to you unless you compare each and every lot listed by the broker to your lots list in Quicken.

If your initial cost basis was incorrect or there have been other transactions like "corporate actions" - mergers, acquisitions, returns of capital, etc. - that you've not properly accounted for in your Quicken file then you'll never match the broker unless you correct the underlying mistakes.

Mark1104

first, the brokerage firms approach is what is correct; that is controlled by reporting requirments to the IRS.

in Quicken, capital gains is determined by the order you buy securities and then the method you choose to indentify the lot to sell (specific, LIFO, FIFO, etc.) in the INDIVUDAL ACCOUNT.

Remember that cost basis in an IRA (TRAD or ROTH) doesn't matter as the security cost basis doesn't impact capital gains taxes. 

question: if the brokerage firm is tracking the cost basis and capital gains and that is what the IRS cares about, why worry about what the cost basis in Quicken is?

Tom Young

"Is Quicken determining the cost basis using only the shares in the individual investing account or using all of the shares of the mutual fund owned across all accounts?"

It calculates cost only based on the lots actually contained in the Account itself, it's not pulling information out of other Accounts with the same security.

If you're getting different capital gains amounts then the capital gains reported by the broker there's at least 2 different reasons for this, assuming that your initial basis in a security was correct:

1. The first reason, and the simplest to correct, is that you are using a different method than the broker to calculate cost, e.g., you're using LIFO and the broker is using FIFO or you're using specific lot identification vs. average cost.  Of course even this can be difficult to correct if you've had a lot of activity in a particular security over time - lots of buys and sells - as you need to go back and edit quite a few transactions to make them consistent with the broker.
2. The second reason for this is if you've had wash sale losses and haven't mimicked the broker's action in allocating the disallowed loss back to specific lots.  These kinds of transactions can be confusing since the allocation is more or less invisible to you unless you compare each and every lot listed by the broker to your lots list in Quicken.

If your initial cost basis was incorrect or there have been other transactions like "corporate actions" - mergers, acquisitions, returns of capital, etc. - that you've not properly accounted for in your Quicken file then you'll never match the broker unless you correct the underlying mistakes.

jimnlesl

Thanks! :) :)

NotACPA

Mark1104 said:

Remember that cost basis in an IRA (TRAD or ROTH) doesn't matter as the security cost basis doesn't impact capital gains taxes.

I disagree with an important part of this statement.

While it's true that there is no tax impact to CapGains in a retirement type account ... the Cost Basis is MOST IMPORTANT for calculating investment performance at both the security level and the account level.

Mark1104

@NotACPA - I'll raise you a "disagree"! Cost Basis is not important for calculating investment performance! 

Performance return is simply the CASH invested compared to the CASH returned, regardless of the cost basis. "cost basis" is only necessary to determine the tax i may owe for capital gains purposes to the IRS.  It's irrelevant in an IRA as taxes owed are based on distributions and not capital gains. 

let me provide this example to prove my point: 

I buy 50 lots of the same security over a multi-year period, buying 100 shares at a time.

I then sell shares on a periodic basis and the way i determine which lots to sell is by using my random number generatior in EXCEL.  On the days that I sell, I sell 100 shares all at once and my random number generator tells me which lots the 100 shares are going to come from.  Yes, that is a crazy (but only 'crazy' because it is unlikely to minimize capital gains tax) and a random approach, but the cash I receive from this random method is the same amount of cash I would receive if I identifed one lot or simply sold in FIFO order. 

my performance is the same regardless of which lots I sell - because the cash I receive is the same regardless of the method utlized!

please look at the 'investment PERFORMANCE' report in Q.  It is based on the investment on the first date chosen, the cash added, the cash withdrawn and the market value on the last date chosen.  Cost basis is not part of result to determine PERFORMANCE; and that is the appropriate way to assess 'performance' 

NotACPA

Investment performance is (value - cost basis + income received)/Cost basis.

You can't calculate performance without cost basis.

AND, your formula only works if the security never changes value.  If it gains or loses value, you're wrong.

Mark1104

please provide the source of your formula from a credible source 

please review how the 'investment PERFORMANCE' report in Q works - it does not use cost basis.  it uses the investment value on the beginning date, adds any further cash investments, subtracts out any cash withdrawals and uses market value on the ending date chosen. 

(and please not flame me that I am wrong - inconsiderate and inflamatory)

q_lurker

You have both taken this discussion off topic. Please cease and desist your arguing.