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PDtax, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 4025
Experience:  35 years tax experience, including four years at a Big 4 firm.
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I made investments in a mutual fund granddaughter. Over the

Customer Question

I made investments in a mutual fund for my granddaughter. Over the years she has got 1099"s for dividend reinvestments and tax has been paid on those. If she draws some of the balance for doctor bills, how do we determine the taxable portion?
Submitted: 4 months ago.
Category: Tax
Expert:  PDtax replied 4 months ago.

Hi from Just Answer. I'mCustomer

Since your original investment was deposited, all the earnings have been taxed, and redeposited.

The best way to determine taxability is to contact the mutual fund company. Most keep purchase records, even going back to when the shares were originally purchased. That will be your basis in the shares.

When you sell, compare your selling price to the cost basis of the shares you sell. Most mutual fund companies will treat the sale as FIFO (first in, first out) for tax gain/loss reporting.

Here's an example:

Purchase 100 shares of growbig fund @ $10, 1/1/14 $1,000

2014 dividend paid of $18, used to buy 2 shares at $9 18

2015 dividend paid of $20, used to buy 4 shares at $5 20

If you sold 102 shares at $11, your tax would be:

sale (102*11) = 1122

cost ([email protected]) - 1000

cost ([email protected]) -22

gain $100

Thanks for asking at Just Answer. Please rate my assistance to close out your request once I have answered your question. I'mCustomer

Expert:  PDtax replied 4 months ago.

sorry, math error. let's try again:

sale (102*11) = 1122

cost ([email protected]) - 1000

cost ([email protected]) -18

gain $104

and you still have 4 shares, basis $20 total.

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