The averaging method has proven to be a salvation during the long bull market of recent years when most shares have steadily risen in value. But with last year s market downturn, averaging may not be the best option for investors who bought at high prices and then sold shares after the market tanked, said Bruce Wertheim, a senior manager at the accounting firm of KPMG in New York. The option to use averaging is available only for mutual fund shares. Investors who sold shares of an individual stock are stuck with the FIFO formula unless the shares qualify for the specific-identification method. Writing off foreign taxes If you had money invested in foreign stocks, bonds or mutual funds last year, there are two ways to write off any foreign taxes paid on your overseas investment income.
Deductions provide only a partial offset.
But Congress eased the reporting requirements for small investors. Most individuals no longer need fill out Form 1116 in order to claim the foreign tax credit. Most parents have an option when reporting the investment income of a son or daughter under age 14. Instead of filling out a separate return for your child, you can include the income on your own return and attach Form 8814. For simplicity sake, it s easier to put the income on the parent s return, Wertheim said.