IAU in taxable -- anybody figure out "Cost Basis Factor" on 1099-B?

[chrikenn]

I received my IAU 1099-B from Vanguard Brokerage Services last week. Box 2 has a relatively small value for each month, along with a "Cost Basis Factor."  The total for the year adds up to about $100.

In general, I get the sense that these small values represent the gold that was sold to cover the expenses of the ETF.  But what exactly am I supposed to do with the "Cost Basis Factor" and the figures in Box 2 on the 1099-B?

Anybody else dealing with this and figure it out?  Thanks.

[Austen Heller]

I had to deal with the same situation.

iShares puts out a nice PDF file that deals with this issue:

http://us.ishares.com/content/stream.js ... cation/pdf

(scroll to the end of the PDF for an example of how to handle this situation).

Basically, I ignored the "cost basis factor" provided by Vanguard, and I used the info in the PDF to figure out my own monthly gains/losses.  For each month, just go ahead and figure out how much gold (ounces) was sold.  Then figure out your cost basis for that amount of gold.  In my case, I "sold" about $4 worth of gold each month for expenses, and it cost me around $5.  So I had around -$1 loss on each monthly sale that I reported on Schedule D.  It is a lot of work, but I think you need to list all the monthly sales separately.  Then, since you sold some gold every month, this will reduce your cost basis for the IAU shares you still own.  The examples in the PDF demonstrate all of this.

In my case, I liquidated my entire position in IAU in mid-December, and I doubt I will buy any more in taxable accounts.  If I need more IAU, I'll buy it in an IRA to make life just a little bit simpler.

[alvinroast]

I've got some IAU in my taxable account as well. It was purchased in 2012. I was thinking it would be better to just keep it there permanently so I don't get hit with the higher tax rate for collectables.

Now I'm thinking I should definitely sell before the end of the year so that I don't need to deal with the "Cost Basis Factor". If nothing else our accountant would be happy and that's always good. I can always buy it the same day in a tax deferred account.

Any thoughts? Any better options for paper gold within a taxable account?

[moda0306]

alvinroast,

I've come up with a bit of a "line of thinking" with gold... I either want it where the government doesn't know about it, or I want it where they can't tax it.

I'm not a gold bug, but I see and appreciate its uses, and want to optimize its location to fit where it might eventually be most useful.  It's basically the only form of money that doesn't have a link to government, so I want it to be in forms where the government has as little knowledge or claim on it as possible, as it's precisely when the public has little faith in government when gold tends to skyrocket.

So I either keep it in my Roth IRA in paper form, or physically (in theory... haven't bought any yet) in small doses (so as not to be reported by the dealer) in physical form.

I'd imagine I'd keep some physical in a safety deposit box, but by no means all of it.

[dualstow]

Thank you for posting this. My Vanguard 1099s are just starting to come in. If it weren't for this forum, I wouldn't have caught this, nor would I have known that I have to fill out forms for merely holding GTU without selling. Of course, this forum is also the reason I bought these items in the first place.  :-\

[chrikenn]

Austen, thanks for the info.  Here is my question, though.  You mention that you have to reduce your cost basis.  How exactly do you do that?  Vanguard does not do it automatically.  Nor do I have access to manually change it.  And starting soon, Vanguard will have to report my cost basis to the IRS if I ever sell shares.

So you can imagine the scenario where you have been accurately and dutifully complying with the rules, and lowering your basis in your own records.  But since Vanguard's records will not reflect the lowered basis, when you eventually sell the item and report your gains or losses accurately according to your own records, they will DISAGREE with the records that Vanguard reports to the IRS, thereby heightening your risk of IRS audit.

So what's a man to do?  It seems like by complying with the rules and actually paying the taxes and lowering your basis, you are shooting yourself in the foot because one day Vanguard's cost basis records are going to disagree with your own manually-kept records.

I had to deal with the same situation.

iShares puts out a nice PDF file that deals with this issue:

http://us.ishares.com/content/stream.js ... cation/pdf

(scroll to the end of the PDF for an example of how to handle this situation).

Basically, I ignored the "cost basis factor" provided by Vanguard, and I used the info in the PDF to figure out my own monthly gains/losses.  For each month, just go ahead and figure out how much gold (ounces) was sold.  Then figure out your cost basis for that amount of gold.  In my case, I "sold" about $4 worth of gold each month for expenses, and it cost me around $5.  So I had around -$1 loss on each monthly sale that I reported on Schedule D.  It is a lot of work, but I think you need to list all the monthly sales separately.  Then, since you sold some gold every month, this will reduce your cost basis for the IAU shares you still own.  The examples in the PDF demonstrate all of this.

In my case, I liquidated my entire position in IAU in mid-December, and I doubt I will buy any more in taxable accounts.  If I need more IAU, I'll buy it in an IRA to make life just a little bit simpler.

[MediumTex]

Austen, thanks for the info.  Here is my question, though.  You mention that you have to reduce your cost basis.  How exactly do you do that?  Vanguard does not do it automatically.  Nor do I have access to manually change it.  And starting soon, Vanguard will have to report my cost basis to the IRS if I ever sell shares.

So you can imagine the scenario where you have been accurately and dutifully complying with the rules, and lowering your basis in your own records.  But since Vanguard's records will not reflect the lowered basis, when you eventually sell the item and report your gains or losses accurately according to your own records, they will DISAGREE with the records that Vanguard reports to the IRS, thereby heightening your risk of IRS audit.

So what's a man to do?  It seems like by complying with the rules and actually paying the taxes and lowering your basis, you are shooting yourself in the foot because one day Vanguard's cost basis records are going to disagree with your own manually-kept records.

I had to deal with the same situation.

iShares puts out a nice PDF file that deals with this issue:

http://us.ishares.com/content/stream.js ... cation/pdf

(scroll to the end of the PDF for an example of how to handle this situation).

Basically, I ignored the "cost basis factor" provided by Vanguard, and I used the info in the PDF to figure out my own monthly gains/losses.  For each month, just go ahead and figure out how much gold (ounces) was sold.  Then figure out your cost basis for that amount of gold.  In my case, I "sold" about $4 worth of gold each month for expenses, and it cost me around $5.  So I had around -$1 loss on each monthly sale that I reported on Schedule D.  It is a lot of work, but I think you need to list all the monthly sales separately.  Then, since you sold some gold every month, this will reduce your cost basis for the IAU shares you still own.  The examples in the PDF demonstrate all of this.

In my case, I liquidated my entire position in IAU in mid-December, and I doubt I will buy any more in taxable accounts.  If I need more IAU, I'll buy it in an IRA to make life just a little bit simpler.

To me, this discussion just highlights the importance of owning physical gold outside of tax deferred accounts.

It's ironic that this discussion is happening at the same time as the TLT discussion, since the TLT discussion sort of points toward the same idea of owning bonds rather than a bond fund if possible.

[Austen Heller]

Hi Chrikenn,

There are 2 options:

1) You can reduce your cost basis, and when you sell, your basis will be different than the one reported by Vanguard.  I believe that (at least in TurboTax), on the page where you report your cost basis, you can select a button that says something like "This cost basis is different than reported by my broker."  Then you need to attach some sort of explanation about the difference.

2) You don't bother to reduce your cost basis, so then your numbers match Vanguard's perfectly.  But you pay more taxes than you should because your cost basis is higher than it should be. 

Pick your poison.  I don't like either option, which contributed to my selling of IAU last year.

[chrikenn]

It's ironic that this discussion is happening at the same time as the TLT discussion, since the TLT discussion sort of points toward the same idea of owning bonds rather than a bond fund if possible.

Haha... and I started both threads.  My problem is that I love to hold both some LT bonds and some gold, but 90%+ of my assets are taxable.  I could hold individual LT bonds and physical gold I guess, but it's just so much easier for me to hold ETFs.  Want to buy some more? Click. Done.  Want to sell to rebalance?  Click.  Done.

With LT treasuries I would have to either go through Vanguard's annoying brokerage or I'd have to open yet ANOTHER financial services account somewhere with a better bond brokerage.  And with physical gold, I'd have to go through the whole process of buying, shipping, storing in a safe place, and dealing with spreads.  Yeah, I guess neither of those things are terribly burdensome, but compared to just owning IAU and TLT, you have to admit that it's at least somewhat more work.

Maybe one day I'll convert... but for now I'm going to try to figure out how to make things work this way.