Questions: When Mary is determining how a withdrawal from her mutual fund account will be taxed, A) the withdrawal if considered earnings first, cost basis last (LIFO) B) the withdrawal is considered cost basis first, earnings last (FIFO) C) she must calculate the cost basis of each share liquidated D) she can use the actual cost basis of the shares liquidated or she can use the average cost basis of all the shares in the account

The answer is D: she can use the actual cost basis of the shares liquidated or she can use the average cost basis of all the shares in the account.

Explanation for each option:

A) The withdrawal if considered earnings first, cost basis last (LIFO) - This option is incorrect. The LIFO (Last In, First Out) method is not typically used for mutual fund withdrawals. Taxation of mutual fund withdrawals does not prioritize earnings over cost basis in this manner.

B) The withdrawal is considered cost basis first, earnings last (FIFO) - This option is also incorrect. While FIFO (First In, First Out) is a method used in some accounting practices, mutual fund withdrawals do not automatically follow this rule for tax purposes.

C) She must calculate the cost basis of each share liquidated - This option is partially correct but not complete. While calculating the cost basis of each share is one method, it is not the only option available to Mary.

D) She can use the actual cost basis of the shares liquidated or she can use the average cost basis of all the shares in the account - This option is correct. When determining the tax implications of a mutual fund withdrawal, Mary can choose to use the actual cost basis of the specific shares she is selling or the average cost basis of all the shares in her account. This flexibility allows her to potentially optimize her tax situation.

In summary, option D provides the correct approach for determining how a withdrawal from a mutual fund account will be taxed, offering Mary the choice between using the actual cost basis or the average cost basis.