Mutual fund prices precision

John Ralls jralls at ceridwen.us
Wed Aug 5 16:38:54 EDT 2015


> On Aug 5, 2015, at 12:47 AM, Mike Alexander <mta at umich.edu> wrote:
> 
> --On August 4, 2015 at 4:02:25 PM -0700 AC <gnucash at acarver.net> wrote:
> 
>> Tax reporting of long term and short term capital gains and losses are
>> dependent on knowing the basis for each, so price precision is
>> important because a rounding error can creep in over time.  What is
>> reported on the statement versus what is kept internally I'm sure
>> differs.  As I said, though, I'm not going to depend on GC to
>> generate reports for that, I'll just wait for the tax form from my
>> broker which has everything summarized as reported to the IRS
>> already.  It was more of an interest in keeping the local records at
>> a high level of precision to avoid rounding accumulation over time.
> 
> Actually, price precision as such is not very relevant for calculating basis.  What is relevant is the total cash invested and total number of shares purchased.  GnuCash tries to keep these correct as you entered them by adjusting the price as necessary.
> 

Almost true. Price becomes important when you sell part of a position, particularly if you need to split a lot or use the average price basis policy. Since the brokerage or fund company may report a basis to the tax authority  it can be important to record that basis somewhere so that it all balances up when you close out the position.

On the other hand the US’s IRS doesn’t care much about pennies so perfect accuracy isn’t necessarily required.

Regards,
John Ralls





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