Tax Season Reminders for Pax World Funds Investors
|April 15, 2023: Deadline for tax year 2022 (prior year) IRA contributions.|
|2022 documents mailed and/or available online:|
|January 31, 2023 (online only): Qualified Dividend Income and Pass-Through Exemptions Information||May 1, 2023: IRS form 5498-ESA|
|January 31, 2023: IRS forms 1099-R and 1099-Q||May 31, 2023: IRS form 5498|
|February 15, 2023: IRS form 1099-DIV/B|
|Pax World Funds mails a combined DIV/B form, which follows the required mail schedule for form 1099-B.
1099-R reports redemptions from retirement accounts; 1099-Q reports redemptions from a Coverdell Education Savings Account (ESA); 1099-DIV reports taxable dividends and capital gains paid to non-retirement accounts; 1099-B reports redemptions from a non-retirement account and cost basis for covered shares; 5498-ESA reports Coverdell ESA contributions; and 5498 reports retirement account contributions.
Cost Basis Information
The effective date for shareholders of mutual funds is January 1, 2012. Shares acquired after the effective date are considered “covered shares.” Mutual funds will now report to both you and the IRS the cost basis for all covered shares sold or exchanged in any taxable (non-retirement) account and any account owned by an S Corporation. The rule requires fund companies to report to the IRS the cost basis, proceeds and capital gain or loss realized on Covered shares.
When filing your tax return, you will be required to use the cost basis reported on your 1099-B for your covered shares.
The new cost basis regulations treat mutual fund shares acquired before the effective date as “non-covered shares.” Mutual funds are not required to report cost basis to the IRS for shares purchased prior to the effective date.
Two key provisions required by the new Cost Basis regulations are:
1. Under the new regulation, the mutual fund must select a default method for cost basis reporting and notify you of its selection. You have the option to choose the same method as the fund’s default or you may choose any of the other cost basis reporting methods. This election is good for all future transactions unless you either revoke or change the election. The Pax World Funds have selected the Average Cost method as the fund’s default.
2. The new regulation removed the exemption from Form 1099-B reporting by S-Corporations. Any entity that fails to indicate their corporate tax status on a New Account Application will be defaulted to an S-Corporation and subject to 1099-B reporting. This status may be updated by completing and returning to Pax World a W-9 form available on the “Literature & Forms” page of this website.
If you elect Average Cost as your cost basis method, the regulations require that you make the election in writing. This can be accomplished by selecting the average cost election and signing the Shareholder Service form. If you do not make an alternate election, the fund’s default method will apply. If you wish to select a different method in the future, we must receive your request in writing prior to your redemption request.
Pax World Funds
P.O. Box 534463
Pittsburgh, PA 15253-4463
If you do not specify a cost basis reporting method, the Funds’ Default Method of Average Cost will be selected as your cost basis method. If you wish to select a different method in the future, we must receive your request in writing prior to your redemption request.
Be sure to sign the form exactly as your name appears on your account registration and include a telephone number where you can be reached. All joint owners must sign the form, and when signing as executor, administrator, attorney, trustee, guardian or as custodian for a minor, please give full title as such. If the account owner is a corporation, partnership or LLC, this form must be signed by an authorized party.
Your cost basis election impacts the taxable gains or losses that will be reported by Pax World to the IRS and reported by you on your income tax return. Please consult your tax advisor for information applicable to your specific tax situation. You may also visit the IRS website at www.irs.gov for more information about cost basis reporting.
Frequently Asked Questions
Cost basis is generally the price you paid for your shares, adjusted for return of capital, certain corporate actions, and any sales charges or transaction fees. Cost basis is an important calculation used to determine gains and losses on any shares you sell in a taxable (non-retirement) account. You will need this information to prepare your tax return.
On October 3, 2008, Congress passed the Emergency Economic Stabilization Act, which requires mutual funds to report cost basis for taxable (non-retirement) accounts and accounts owned by S-Corporations to the IRS and taxpayers via Form 1099-B starting with tax year 2012.
The legislation also requires that the new Form 1099-B indicate if the gain or loss is short-term or long-term, and the amount of any loss disallowed under the wash sale rules.
Covered refers to mutual fund shares acquired on or after January 1, 2012, the effective date of the legislation.
Non-covered refers to mutual fund shares acquired prior to the effective date. Mutual funds are not required to report cost basis information for non-covered shares.
Pax World selected the Average Cost method as the fund’s default cost basis election. You have the option to choose the same method as the fund’s default or you may choose any of the other cost basis reporting methods. This election is good for all future transactions unless you either revoke or change the election.
If you elect Average Cost as your cost basis method, the regulations require that you make the election in writing. This can be accomplished by selecting average cost on the Shareholder Service form, signing and returning it to the address on the form.
If you do not make an alternate election, the fund’s default method will apply.
If you wish to select a different method in the future, we must receive your request in writing prior to your redemption request.
The following cost basis methods are available to you:
Average Cost (ACST) – A method to calculate the gain/loss by adding up the number of shares owned as well as the total dollar amount of the shares; the dollar amount is divided by the number of shares. The average price of covered securities is calculated separately from non-covered securities, as if they were in two accounts.
First In First Out (FIFO) – A standing order to sell the oldest shares in the account first.
Last In First Out (LIFO) – A standing order to sell the newest shares in an account first.
High Cost First Out (HIFO) – A standing order to sell the most expensive shares in the account first.
Highest Cost Long-Term In, First Out (HILT) – A standing order to sell the most expensive shares held for more than one year in the account first. When the long-term shares are gone, any remaining shares will be sold in FIFO order.
Highest Cost Short-Term In, First Out (HIST) – A standing order to sell the most expensive shares held for one year or less in the account first. When the short-term shares are gone, any remaining shares will be sold in FIFO order.
Lowest Cost In, First Out (LOFO) – A standing order to sell the least expensive shares in the account first.
Lowest Cost Long-Term In, First Out (LILT) – A standing order to sell the least expensive shares held for more than one year in the account first. When the long-term shares are gone, any remaining shares will be sold in FIFO order.
Lowest Cost Short-Term In, First Out (LIST) – A standing order to sell the least expensive shares held for one year or less in the account first. When the short-term shares are gone, any remaining shares will be sold in FIFO order.
Specific Lot Depletion Method (SLDM) – The shareholder needs to designate which specific shares to redeem when placing their redemption request. If the shares being sold are not specified when the transaction is requested, IRS regulations deem that the shares must be sold in FIFO order.
It depends on your personal tax situation. You should consult with a tax advisor to decide what option is best for you.
The cost basis method determines which tax lots are sold first. A tax lot consists of one or more shares of a security purchased at the same price on the same day.
If your account contains only covered shares, the shares will be depleted based on your selected cost basis method.
Most accounts will contain both covered and non-covered shares. In these cases, the order in which shares are depleted will depend on the cost basis method. For example, under the Average Cost method, non-covered shares will always be depleted before covered shares.
When you sell or exchange shares from your account, all non-covered shares will be depleted before covered shares. The non-covered shares will be depleted using the Average Cost Method starting with the oldest shares first (first in, first out). For shareholders who elect a method other than Average Cost or Specific Lot Depletion Method (“SLDM”), you will have the option to use the same cost basis accounting method that you have chosen for your covered shares to deplete non-covered shares. It is important to note, however, that Pax World may be unable to accurately identify and sell your highest or lowest costing non-covered shares, as average cost was the only calculation method we used prior to January 1, 2012.
Effective January 1, 2012, if you have not proactively elected a basis method and the fund’s default is average cost you may retroactively change the fund’s default to another method before the date of the first redemption or transfer. Whether you are changing from average cost to another basis method or changing to average cost from another basis method, that request must always be in writing. Once your shares have been sold, the cost basis method applied at the time of the sale cannot be changed. You may only elect another method for future sales.
You may always change your cost basis election prospectively for Covered shares from the date of acquisition going forward. If you have elected or defaulted to Average Cost, and there have not been any redemptions or exchanges of Covered shares from your account, you may revoke your prior election and retroactively elect a different cost basis method for your Covered shares. However, once you sell Covered shares using the Average Cost method, you may not change your cost basis method on existing Covered shares in your account. For all other cost basis methods, you may change your cost basis method on existing Covered shares at any time.
Under current IRS regulations, you are not allowed to change the cost basis used for a sale after it has occurred.
If the donor’s basis is less than the value of the gift at the time the gift is made, you generally must use the donor’s basis. If it isn’t, you would use the following:
- The donor’s basis if it’s greater than the sales price.
- The fair market value on the date of the gift if it’s greater than the sales price.
You’re considered to have neither a gain nor a loss if the sales proceeds are greater than the fair market value on the date of the gift and less than the donor’s basis.
The new rules remove the 1099-B reporting exemption for S-Corporation; C-Corporations retain their exempt status. To update the corporate tax status of a corporation, a new Form W-9 will need to be completed and returned to Pax World Funds, P.O. Box 534463, Pittsburgh, PA 15253-4463.
Taxpayers are required to report the sale of non-retirement mutual fund shares on their individual income tax returns. Before 2012, mutual funds have only been required to report the proceeds of fund share sales — not the actual gain or loss. Many funds, including Pax World, provided an average cost basis on certain eligible accounts as a service to shareholders, but this information was not reported to the IRS.
Beginning in 2012, regulatory changes required that mutual funds track and report cost basis information to the IRS for fund shares purchased after January 1, 2012. The rule requires fund companies to report to the IRS the cost basis, proceeds and capital gain or loss realized on covered shares sold or exchanged in any taxable (non-retirement) account and any account owned by an S Corporation.
It is important to note that investors will still be solely responsible for calculating and reporting gains and losses realized on the sale of non-covered shares. While Pax World will continue to provide an average cost basis for non-covered shares (when available) as a service, this reporting is not required and will not be reported to the IRS.
You will receive a Form 1099-B showing sales proceeds for each redemption transaction in your non-retirement account. Basis information will be reported along with the calculated gain or loss on the sale. The gain or loss will be classified on the form as short-term or long-term based on the acquisition date of the shares. The information reported to you on Form 1099-B will also be reported to the IRS.
You will need to have your cost basis election submitted before your first redemption of those shares. If you have not provided your election by then, the fund’s default will apply to your account.
A wash sale occurs when you sell an investment at a loss, and repurchase a substantially identical investment within a 61-day period that extends from 30 days before you take your loss until 30 days after. Losses from wash sales are not deductible. Instead, the loss is added to the cost basis of the repurchased investment. Any wash sale for covered securities will be reported to the IRS and you on Form 1099-B.
The information on this website is not intended to be a complete discussion covering all of your income tax requirements, and should not be relied upon as a source of professional advice. If you require specific information concerning your individual tax situation or require assistance with determining which cost basis reporting method is appropriate for you, please consult your tax advisor.