Final answer:
To calculate taxes after selling a mutual fund, find the cost basis, subtract reinvested dividends, calculate the sale price, and determine the net profit. Then apply the capital gains tax rate, and subtract the tax from the net profit to find the after-tax income.
Step-by-step explanation:
Calculating Taxes on Mutual Fund Sales
To calculate the taxes after selling a mutual fund that you've owned for a long time and for which you've paid capital gains each year, you'll need to follow these steps:
Determine the original purchase price of the mutual fund, which is also known as the cost basis.
Subtract any reinvested dividends and capital gains distributions that increased your cost basis over the years.
- Calculate the sale price of the mutual fund shares.
- Subtract your adjusted cost basis from the sale price to determine the capital gain or loss.
- Consider the holding period to determine if the gain is long-term or short-term, as this affects the tax rate.
- Apply the relevant capital gains tax rate based on your holding period and income level.
For example, if your national income (sale price) from the sale is $27,600 and your adjusted cost basis is $15,600, and the company charges you $20.00, your calculation will be:
- $27,600 - $15,600 = $12,000 (capital gain).
- $12,000 - $20.00 = $11,980 (net profit).
Then, apply the appropriate capital gains tax rate to the net profit of $11,980 to determine the tax amount. The after-tax income is calculated by subtracting the tax amount from the net profit.