Question: How can I compute what tax I owe on the sale of mutual funds that I bought in installments? I paid in a total of $8,000 over a period of eight years.

Answer: As a first step, divide the total amount received on redemption by the total number of shares redeemed. This will give you the per-share selling price.

The simplest way to determine the per-share cost is to use the average cost method. Start with the total amount you paid in over the years - $8,000, according to your letter. Add the total amount of dividends and capital gains reinvested (that is, used to buy additional shares) during the period of your ownership.

If you divide the total amount (original investments plus reinvestments) by the total number of shares owned at redemption, you will have the unit or per-share cost basis9 (This assumes you have no partial redemptions earlier.)

Now you have to divide the total number of shares redeemed into two groups: those acquired - on Schedule D of your tax return. On that schedule write the statement "average basis single category" to identify the method used for establishing the cost basis of the shares.

Q: I have tried to open a savings account for my six-year-old daughter, but the banks insist that for tax purposes they must have a social Security number for her. I don't want to "number" a little child yet. Is there an alternative?

A: There isn't really a satisfactory alternative. You can open a joint account in your name and your daughter's name as co-owners, using your Social Security number.

But when the bank reports the annual interest earnings on the account to the IRS, it will be recorded in your number, and the IRS will expect you to report the income on your tax return.

The major advantage to placing the account in your daughter's name alone is the tax savings derived because the interest earned is then income to her, and she is likely to have no income tax liability. either by purchase or by reinvestment - during the 12 months immediately preceding the sale, and all the rest.

You then calculate the capital gain (or loss) for each of the two groups separately. Multiply the number of shares in the group by the per-share cost to get the total cost basis, then by the per-share selling price to get the total sales price. The difference between the two totals is gain if sales price is greater than cost, or loss if the cost figure is larger.

Report the gain or loss on those shares owned 12 months or less as short-term; disposition of the shares owned more than 12 months results in a long-term capital gain or loss.

You report capital transactions - both short-term and long-term -

But to do this the bank is required to have a tax identification number for the account - the Social Security number for the owner of an individual account, as in this case.

Why the objection to getting a Social Security number for the child? It's not really depersonalizing. It's simply federal registration of a unique identification number, which may be useful for other things as well; the Social Security number is used more and more by both government and nongovernment organizations for positive identification.

Q: I've seen the word "disintermediation" used in connection with investments. What does it mean?

A: "Disintermediation" refers to the withdrawal of your money from a bank or other savings institution for investment in such things as stocks and bonds - often to obtain a better return.

Despite the frightening number of syllables, the word really is a valid description of what is happening. The savings institution had been acting as a middleman ("intermediary") in channeling the money from you to a borrower (via a business or personal loan or a mortgage).

When you take your money away from savings institution and invest it directly, you are eliminating the intermediary - thus engaging in "disintermediation."