Wednesday, December 29, 2010

Specific Identification

Specific Identification is another method of determining the cost basis for your mutual fund share purchases (average cost, and FIFO are other methods). With specific identification you need to keep good detailed records of each purchase including price paid, date, etc. Under this method you select which shares from which purchase date you are selling, thus in terms of tax liability you would want to select the highest price purchase you made in order to crystallize a lower tax obligation. You will need to give notice to the fund manager of the purchase details as well as checking with the IRS or your accountant on the procedures. It is prudent to get competent tax advice, as good advice will earn you money as well as save you from potential liabilities.

Synonyms: Cost basis, Taxable profits

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