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What to expect at tax time

If you sold stocks, mutual funds, or ETFs in 2011, the process to complete your 2011 tax return—which you'll file in 2012—will be somewhat different. The changes will be most notable if you bought and subsequently sold stocks through a Vanguard Brokerage Services® account in 2011.

If you've sold shares in the past, you've been responsible for reporting your gains or losses and your cost basis on Form 1040, Schedule D, when you filed your federal tax return. However, new cost basis regulations require Vanguard to report cost basis information not only to you but also to the IRS. This change took effect for the 2011 tax year for stocks and certain ETFs, and is now effective for mutual funds and most ETFs.

What shares are covered under the new regulations?

Vanguard will report cost basis information to the IRS only for "covered shares," meaning those acquired and subsequently sold after the new regulations take effect.

For "noncovered shares"—those you acquired before the effective date of the new regulations—Vanguard will continue to report cost basis information only to you.

Holding type Covered shares Noncovered shares
Stocks and certain ETFs* Shares acquired on or after January 1, 2011. Generally, shares acquired before January 1, 2011.
Mutual funds**, most ETFs, and DRIPs Shares acquired on or after January 1, 2012. Generally, shares acquired before January 1, 2012.

* ETFs that are unit investment trusts (UITs) issued by regulated investment companies. If you're not sure whether this applies to your ETF,
check with your issuer.

** Excluding money market funds.

You remain responsible for reporting your cost basis information on IRS Form 8949 and Form 1040, Schedule D, for all shares sold, whether they're covered or noncovered. You can use your own records or the cost basis information Vanguard provides you. For your covered shares, it's important that the information you report matches what Vanguard sends to you and to the IRS on Form 1099-B.

Check back for additional details about forms you can expect to receive from Vanguard and new tax-filing procedures.

Note: This information is not intended to be tax advice and cannot be used to avoid any tax penalties. We recommend that you consult a tax advisor.

Vanguard's cost basis reporting doesn't account for any tax-related basis adjustments you may have to make (e.g. gift taxes).

 
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