Update: Since this article was originally published, new legislation requires that mutual fund providers calculate -- and report to the IRS -- the cost basis for all mutual fund shares purchased after Jan. 1, 2012. Investors can choose from a minimum of three cost basis accounting methods. For mutual fund shares purchased prior to 2012, the article below still serves as a guide to selecting the appropriate, historic cost basis method. To stay abreast of the latest developments in mutual fund cost basis methods, we recommend bookmarking this Wikipedia page.NEW YORK ( TheStreet) -- Taking your money out is supposed to be the easy part. But for many mutual fund investors, that's when the headache begins. Selling mutual fund shares requires a fair amount of organization andplanning -- especially if you want to optimize the resulting tax situation.Whenever you sell shares in a mutual fund, you'll generate a capital gain orloss that must be reported to the Internal Revenue Service. Even if you move money from one fund into another in what seems like a single, seamless transaction, a taxable event still has occurred. You'll owe tax (or can claim a loss) on the sale, and the amount you transfer to another fund will serve as the initial cost basis for that fund. Determining the cost basis of your shares can be a tricky business, though.But no matter how frustrating the process seems, it's a crucial step.
TheStreet’s Fundamentals of Investing Course will teach you the keys to making the right decisions in any market.
TheStreet’s Personal Finance Essentials Course will teach you money management basics and investing strategies to help you avoid major financial pitfalls.
TheStreet Courses offers dedicated classes designed to improve your investing skills, stock market knowledge and money management capabilities.
More from Mutual Funds
Which Technology Stocks Make Better Investments During a Trade War?
Here's your playbook for gearing a long-term portfolio during a trade war.
Checking the Pulse of the U.S. Economy: Too Much Debt?
Mark Hulbert says the antidote to overconfidence is to periodically step back and assess the health of the economy.
TD Ameritrade Cuts Fees on ETF Trades in Further Blow to Mutual Funds
As competition heats up in the exchange-traded funds industry, TD Ameritrade nearly doubles the roster of ETFs eligible for commission-free purchases.