How do I calculate Applicable Basis for Partial Withdrawal from my Investment?

Wait, so does this apply to all investment types? Like would it be different if this was from a mutual fund vs individual stocks vs crypto? And do you have to report this on a specific tax form?

The proportional method I described applies to most investment types, including mutual funds and individual stocks, but there can be some variations depending on the specific investment. For mutual funds and stocks, this calculation is standard, but you should keep good records of your transactions. For tax reporting, you'll typically use Schedule D and Form 8949 to report capital gains. Your brokerage should provide a 1099-B showing the proceeds from your sale, though you may need to adjust the cost basis if they don't have your complete basis information.

Hmm sounds interesting. Can it handle more complicated situations like wash sales or if you've reinvested dividends over time? My broker's tax documents never seem to get those right.

I'm confused about how this works. Do you just upload your statements or what? And does it integrate with tax filing software after figuring out the basis?

It definitely handles wash sales and reinvested dividends! That was actually one of my biggest headaches before. The system flags potential wash sales automatically and properly includes reinvested dividends in your cost basis calculations, which saved me from double taxation. For your question about how it works, you can either upload your brokerage statements or connect directly to many brokerages for automatic import. Once it calculates everything, you can export the results in formats compatible with major tax software. I used the TurboTax import feature and it worked perfectly with the Schedule D worksheet.

How does this actually work? Seems weird that a service could somehow magically get through the IRS phone queue when everyone else is stuck on hold for hours?

Sorry but this sounds like BS. I've been calling the IRS for WEEKS about my missing refund and can't get through. There's no way some service can just skip the line. They probably just put you on hold themselves and charge you for it.

It works by using automated technology to handle the hold time for you. They've got a system that navigates the IRS phone tree and waits on hold, then when a real person answers, they call your phone and connect you directly to the agent. They're not skipping any lines - they're just waiting in line for you. Regarding your skepticism, I felt the same way initially. But it's not BS - they don't charge you until they actually connect you with an IRS agent. I was surprised too, but it worked exactly as advertised. They waited on hold for about 87 minutes according to my dashboard, but I only had to be on the phone for the 15 minutes I was actually talking to the IRS agent.

Thanks for mentioning this! If I wanted to use specific identification, do I need to tell my broker at the time of sale or can I just choose which shares I sold when I file taxes? And does this work for all investment types?

You generally need to specify which shares you're selling at the time of the transaction. Most online brokers have an option during the sell order process where you can select "specific lots" or "specific shares" instead of the default method. Once the transaction is complete, it's usually too late to change which specific shares were sold. This works for most stocks, ETFs, and mutual funds, though some mutual funds are restricted to average cost method once you've used it. It typically doesn't apply to certain investments like bonds or options contracts. Check with your specific broker about their lot selection capabilities if you're unsure.

I've used TurboTax for years and their investment section is decent but not great for complex situations. It works well if your 1099-B has complete basis info, but if you need to do manual basis calculations for partial withdrawals, you're still doing the math yourself. I found that having good records before starting tax prep makes all the difference.

This is really helpful clarification! I'm actually dealing with a taxable brokerage account like you mentioned, so the proportional method seems like the right approach for my situation. I hadn't realized how different the rules are for retirement accounts vs regular investment accounts. One follow-up question - when you say "keep detailed records," what specific information should I be tracking beyond just the purchase dates and amounts? Should I be documenting things like dividend reinvestments separately, or does my broker usually handle that automatically in their cost basis reporting?

Great question about record keeping! Beyond purchase dates and amounts, you should definitely track dividend reinvestments separately - each reinvestment creates a new "lot" with its own cost basis and date. Also keep records of any stock splits, spin-offs, or merger transactions as these can affect your basis calculations. While many brokers now provide decent cost basis reporting (especially for shares purchased after 2011), they don't always have complete historical data, particularly if you transferred accounts or held investments before the reporting requirements kicked in. I'd recommend keeping your own spreadsheet or using investment tracking software to maintain a complete picture. Also document any return of capital distributions (common with REITs and some funds) as these reduce your cost basis rather than being taxable income. Having this documentation will save you major headaches during tax season, especially if you're using methods like specific identification for tax optimization.