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I was thinking that with dollar cost averaging buy, we actually can do the same thing when we sell: just sell $100 per day, just like we were buying $100 per day.

However, won't that cause a total chaos when reporting tax? It could be, the selling of this 0.7854234 shares is associated with the share bought at $163.82 for 0.3313123 shares, and then $168.23 for 0.27134758 shares... oh but wait, I already supposedly sold those shares at a higher cost one month ago, so which ones did I sell for these 0.7854234 shares... I mean, it could almost drive a person crazy just doing 0.7854234 shares, not to mention doing 365 of them for the year. (or 250 of them for market open). And imagine if you have to do it for 2 or 3 stocks, so it is 500 or 750 of this. By the time you are done, the year may be already over.

So what can be a feasible solution?

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  • Tax questions should have a country tag indicating the jurisdiction. Commented Sep 21, 2023 at 22:59
  • Under some circumstances, the tax reporting software I've used lets me enter the broker's 1099 summary numbers for the equity with the date field given as "various short-term" and/or "various long term" rather than entering everybody's individual transaction. Depending on just how hairy your ESOP is and how much data the forms give you, that might be possible here. Sorry, I don't have more specifics.
    – keshlam
    Commented Sep 24, 2023 at 12:47
  • Note that apart from the tax complexities, DCA for selling/redemption is harmful, lowering the average price you receive.
    – Ben Voigt
    Commented Sep 28, 2023 at 15:07

3 Answers 3

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I'm assuming US based on previous questions, but please add a country tag.

Your tax return (specifically Form 8949) could get a little busy, but it's just transferring the information from your 1099-B to your return. With more and more brokerage firms allowing fractional transactions and dollar amount trades (vs. being restricted to trading full shares), this is becoming much more common. Not a big deal at all.

Your brokerage firm is required to track your purchases and sales, and you'll also decide which shares are sold (FIFO/LIFO/Mtax/etc.). You'll receive a 1099-B after the year ends that details your sales to report on your tax return.

Say you started off with 1,000 shares of XYZ bought over the course of several years at different prices. Each purchase is its own tax lot: quantity, price per share, total cost, etc.

If you elect FIFO (first-in-first-out), your shares will be sold in order of earliest purchase to most recent purchase, and the opposite for LIFO (last-in-first-out). Min-tax aims to minimize taxes, and specific-lot allows you to choose exactly which shares to sell. Partial sales of tax lots are tracked automatically.

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    Even better, if all your (transacted) holdings are 'covered' for basis reporting (bought after 2011-2015 depending on type) and you don't have adjustments (such as wash sales) there is an option to use 1a and/or 8a on Schedule D, meaning "just use the 1099B data" and you don't have to fill out 8949 at all. Commented Sep 22, 2023 at 2:25
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So what can be a feasible solution?

The only solution that avoids the chaos is to not intentionally use dollar-cost averaging for buying or selling, especially in non-tax-deferred (non-retirement) accounts. Yes, you (or your broker) will have to match up buys and sells, and will probably run into mismatched lots (e.g. you'll sell some shares/units from one lot and some from another).

You need to decide if that hassle is worth the potential (but unlikely) benefit from DCA.

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  • It's hard to believe that any chaos would be necessary in the age of computers. My EU broker just gives me a yearly report matching all the buys and sells. So yes, it's a multi-page PDF with all the gory details,but only the totals need to be copied to my tax return. Other answers here seem to suggest that something similar should be possible in the US, isn't that so?
    – TooTea
    Commented Sep 24, 2023 at 10:27
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Your broker will reconcile all trades, determining wash sales, if any (Form 8949). Good tax trading software will provide the same during the taxable year.

A wash sale occurs if buy replacement shares within 30 days or 30 days after realizing the loss. So if you wait 31 days after your last purchase, you can realize losses without incurring wash sales. Make sure not to buy back shares. Turn off dividend reinvestment because those are purchases and will trip you up.

You can also get around a realized loss if you designate positions for sale that have gains. Then, you won't incur any wash sales. If you don't have gains, this is a non starter.

For very active traders, tax trader status does not involve wash sales. It's annual mark-to-market accounting. Investors need not apply.

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