Answers to your Tax Season Questions

I live in Indiana. I had no trouble filling out my tax forms (I'm able to use the 1040EZ), but I do not know where to send my federal return! I have found 2 different addresses so far. Any feedback would be greatly appreciated. M.W. via e-mail.  

The IRS has changed the mailing addresses for all federal income tax returns this year. Not only have the locations of the service centers changed for many of the states, but each service center now has two different zip codes, depending on whether or not you are sending money with your tax return. The instructions that accompany your tax return will show you the proper address for mailing your return.  

Federal tax returns for Indiana residents get mailed to: Internal Revenue Service Center, Philadelphia, PA 19255-0002 if you are not sending money with your tax return. Use the zip code 19255-0102 if there is money included with your tax return.  

For a complete list of all the mailing addresses for 2000 federal tax returns (including the addresses for estimated tax payments, which do not go to the same address as the tax return), you can go to www.accountingweb.com/item/37489/101 on the Internet.  

I have a mutual fund that I started approximately 15 yrs ago. The fund has grown through reinvested dividends and capital gains. I have paid tax on the dividends and capital gain distributions since the inception of the fund. In 2000, I redeemed some shares and used the funds to purchase a house. Do I need to pay taxes on the funds received from the redemption of the shares? B.G. via e-mail.   

Some of the money you withdrew from the fund will be taxed, but not all of it. You need to pay tax on the profit portion of the money you took from the fund. The profit is the amount by which the sales price of the shares exceeds the cost of the shares.  

You will need to fill out Schedule D with your tax return. This is the form on which you calculate the amount of gain (or loss) on the shares you sold. Assuming you made a profit on the shares you sold, you will also use the Schedule D to calculate the tax on these shares. The Schedule D requires you to enter the cost of the shares you sold and the amount you sold them for. Where it asks for the date on which you purchased the shares, you can enter "VARIOUS" because the shares were purchased on several different dates.  

Because the fund has grown for 15 years with dividends and capital gains being reinvested, you may not easily be able to specifically identify the cost of each individual share you sold. If you know the specific cost of the shares you sold, you can use this amount on your Schedule D.  

Alternatively, the IRS lets you determine an average cost for all the shares in your fund and apply that cost to the shares you sold. The 1099B form you receive from your mutual fund at the end of the year describes the sale of the shares, and on this form your broker may have calculated the average cost for you. If this average cost amount is not on the form, you can call your broker and he may be able to tell you the average cost.  

If the average cost is not readily available from your broker, you will need to go back 15 years and add up all the money that was originally spent to purchase shares of the fund as well as all the dividends and capital gains that have been reinvested, then divide this total amount by the number of shares in the fund. That will give you the average cost per share. Multiply this amount times the number of shares you sold in 2000 to determine the cost amount to use on your tax return.  

One thing to keep in mind about averaging the cost of shares in a mutual fund is that if you use the averaging method (as opposed to identifying the specific cost of each share you sold), you must continue using this method for all future sales of shares from this fund.  

The difference between the cost of the shares and the selling price is the amount on which you are required to pay tax. The rate of tax on this particular type of income is either 10% or 20%, depending on your regular tax rate on your other income. Follow along on page 2 of the Schedule D and you can calculate your tax on the sale of these shares.