Final answer:
To calculate taxes after selling a mutual fund, subtract the cost basis from the sale price to find the gain, then subtract any commissions and the capital gains tax from the net profit to find the after-tax income. Long-term capital gains tax rates apply for holdings longer than one year.
Step-by-step explanation:
When you sell a mutual fund that you have held for a long time and on which you have paid capital gains each year, you need to calculate the tax on the final sale. The first step is determining the cost basis, which is the original purchase price plus any reinvested dividends and capital gains distributions. Then, you subtract the cost basis from the sale price of the mutual fund to determine your gain or loss. If you have held the mutual fund for more than one year, the gain will typically be taxed at long-term capital gains rates.
Now, to calculate the after-tax proceeds, you start with the sale proceeds and subtract any sales charges or commissions (as shown in the LibreTexts™ example). From there, you determine the capital gains tax owed by applying the appropriate tax rate to your gain. This tax amount is subtracted from the net profit to find your after-tax income. The formula would resemble the following: National income (or sale proceeds) minus taxes.
Keep in mind that if you've paid taxes on capital gains distributions in previous years, those amounts increase your cost basis, which in turn would lower the capital gain (or increase the loss) realized on the sale. It's essential to maintain accurate records of all capital gains paid out and taxes previously paid.