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Author: berkeleyroad One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121351  
Subject: Another newbie question Date: 2/8/2002 6:58 PM
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In August of 2001, I transferred my stock holdings from broker A to broker B(I hadn't sold any stock from Broker A all year). I just received a "Substitute 1099" form from Broker A. On this form, there is a section called "securities sold" that lists all the stocks I transferred. This isn't a real sell situation, is it? In other words, I didn't actually sell stock so I don't have to pay capital gains here, correct? In the annual summary section, items 1 through 9 all say 0.

Also, there is a "Proceeds (Net)" section with an amount listed (about $65). What exactly does this mean?---on the back of the form, it says this is "iterest or principal forfeited because of early withdrawal of time of savings. You may report this on the 'Penalty on early withdrawal of savings' line of Form 1040'"

Thanks, as always, for all of your help!!
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58613 of 121351
Subject: Re: Another newbie question Date: 2/8/2002 8:02 PM
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I just received a "Substitute 1099" form from Broker A. On this form, there is a section called "securities sold" that lists all the stocks I transferred. This isn't a real sell situation, is it? In other words, I didn't actually sell stock so I don't have to pay capital gains here, correct? In the annual summary section, items 1 through 9 all say 0.

You're probably looking at a summary or recap that is not part of the official 1099. Transferring shares from one broker to another is not a taxable event. If, however, the old broker sold the shares and transferred cash to the new broker who repurchased the securities, then you do have a taxable event.

Also, there is a "Proceeds (Net)" section with an amount listed (about $65). What exactly does this mean?---on the back of the form, it says this is "iterest or principal forfeited because of early withdrawal of time of savings. You may report this on the 'Penalty on early withdrawal of savings' line of Form 1040'"

Sounds like you had a Certificate of Deposit that you cashed in early. The early withdrawl penalty is an adjustment to your income.

--Peter

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Author: berkeleyroad One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58616 of 121351
Subject: Re: Another newbie question Date: 2/8/2002 8:27 PM
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Peter,

Thanks for responding to my post.

You wrote: Sounds like you had a Certificate of Deposit that you cashed in early. The early withdrawl penalty is an adjustment to your income.

I definitely didn't have a cd with this broker. Here's more info: The "Proceeds (Net)" section is itemized with the 5 stocks that I owned, next to which are dollar amounts for each stock for a total of 64.85. column 1a is the date which I ordered the transfer to broker B; 1b. is the CUSIP number; 2, is the Proceeds Net column; 3 is a Barter Column (with 0 listed for each stock); 4 is withholding with 0 listed for each stock; and 5 is the name of the stock.

I have no idea what to do with this number (64.85) or what it is. Elsewhere on the year-end tax statement, it says ordinary div. of only .80, and capital gains dist. of $0. Any other ideas on where these figures are coming from--and more importantly do I need to do anything in terms of tax reporting?

Thanks again!!

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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58619 of 121351
Subject: Re: Another newbie question Date: 2/8/2002 9:06 PM
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By any chance, did you ever do dividend reinvestment with broker A? If so, some of your positions would likely have included fractional shares, which do not transfer. Those would have been sold, and could account for those small proceeds. Though I would think in that case that you'd see something like "sold .213 shares XXX". If that's where this $65 came from, you have Sch D entries, and have to do some basis crunching.

Yeah, I know, this doesn't fit very well with that business about early withdrawal. Just thinking out loud...

Lorenzo

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58621 of 121351
Subject: Re: Another newbie question Date: 2/9/2002 12:42 AM
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I have no idea what to do with this number (64.85) or what it is. Elsewhere on the year-end tax statement, it says ordinary div. of only .80, and capital gains dist. of $0. Any other ideas on where these figures are coming from--and more importantly do I need to do anything in terms of tax reporting?

I've got to agree with lorenzo. It sounds like fractional share sales from a DRiP. But I don't know why anything would be labelled an early withdrawl penalty. Sounds like there might be more to the story.

--Peter

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Author: berkeleyroad One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58662 of 121351
Subject: Re: Another newbie question Date: 2/9/2002 7:29 PM
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Lorenzo,

I did some research on my first broker's web site, and you were right: The $64.85 is from the sale of fractional shares (of 4 stocks, the largest amount being $60.67) when the whole shares were transferred to Broker B. Thanks for pointing me in the right direction.

Now, since this $64.85 does NOT appear anywhere on the 1099-DIV form (only on form 1099-B (Proceeds from Broker and Barter Exchange Transactions), do I still need to report this? I do already have a Schedule D form for losses incurred by a mutual fund I sold. According to the 1040 booklet, though, under line 13 (page 23), it doesn't mention anything about needing to report amounts from form 1099-B, only from 1099-DIV, which for this particular case says 0 all the way down. If I do need to report this 64.85, what is the easiest way to do this?

Thanks again for all your help. I'm determined to do my own taxes and I really appreciate all the helpful advice that people have posted.

--a humbled rookie

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Author: lorenzo2 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58665 of 121351
Subject: Re: Another newbie question Date: 2/9/2002 9:36 PM
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Ok, great. Now we sort of understand what's going on.

Now, since this $64.85 does NOT appear anywhere on the 1099-DIV form (only on form 1099-B (Proceeds from Broker and Barter Exchange Transactions), do I still need to report this? I do already have a Schedule D form for losses incurred by a mutual fund I sold. According to the 1040 booklet, though, under line 13 (page 23), it doesn't mention anything about needing to report amounts from form 1099-B, only from 1099-DIV, which for this particular case says 0 all the way down. If I do need to report this 64.85, what is the easiest way to do this?

Yes, even though these were smallish sales of fractional shares, there were still sales of stock, and should be reported on Sched D. That means you have to sort out the basis - what you paid originally for the piece that was sold. Unless there were stock splits involved (and assuming you had no earlier sales of this stock!), the fractional share sold will derive from the very first share you ever bought. Find the per share cost of that initial purchase, and multiply by the share fraction - that's your basis. Your Sched D entry will show that cost, and you will show a gain or loss depending on what your net from the sale was.

Here's a dumb little example:

100.000 shares X $1,509.95 (cost + commission)
1.273 shares X $22.50 (div reinvest)

So you have 101.273 shares. Now you change brokers from A to B, so broker A sells the 0.273 shares and transfers the 101 whole shares to B. So what share got sold? You're stuck with FIFO here, so you have to work your way down from the top. That is, it's the FIRST .273 share you ever purchased. The cost of that first block of 100 shares is 1509.95, so the first share cost 15.0995. You sold .273 of that share, so the basis of your sale is .273*15.0995 = $4.12. (If you sold shares earlier, it's a little more complicated. Likewise if there were splits/spinoffs or other things which affect your basis.)

This is why div reinvestment can be a real pain. You now have to remember that you've used up the first $4.12 of your total basis, and sold off that first .273 share. It's a darn sight easier if you just sell everything at once, so you don't have to mess with all these little bits.

Anyway, good luck. I'll be happy to give you a hand with the details if the above doesn't make sense.

Lorenzo, who learned some time ago that DRIPs can be messy.

P.S. I'm puzzled as to why you don't have dividends on a 1099-R. These must be dividend paying stocks, otherwise you wouldn't have fractional shares. Maybe you switched brokers really early in the year, and all the dividends were reported by broker B?

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Author: berkeleyroad One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58691 of 121351
Subject: Re: Another newbie question Date: 2/10/2002 12:04 PM
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Lorenzo,

Thanks for another very informative response to my last post. I am most grateful. You outlined the steps for scedule D reporting in a way that I think I can follow without too much difficulty. Fortunately, I keep very good track of my records so I should be able to track down the amounts I paid for the very first shares of each of those stocks.

I now understand that these fractional shares were sold and that I have to report this sale, but if they were sold, shouldn't I have gotten a check from for the 64.85 when they were sold? I have no record of receving a check or of being notified of such a sale. I plan on contacting Broker A (Buy and Hold.com) first thing tomorrow for an explanation. Before I report this as a sale, I want to confirm that this is what actually happened. Frankly, the tax paperwork from BuyandHold is utterly confusing and contradictory.

Thanks again for your help! I'll let you know what B&H has to say.


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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58724 of 121351
Subject: Re: Another newbie question Date: 2/10/2002 9:03 PM
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The proceeds from the sales $64.85 should have been transferred as cash to your new broker. Buy and hold charges at $25 fee to transfer securities. I am not certain if that is per security or per account. Part of the proceeds may have been used for the transfer fees.

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Author: berkeleyroad One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58752 of 121351
Subject: Re: Another newbie question Date: 2/11/2002 9:25 AM
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Okay, I just spoke with a rather rude gentleman from BuyandHold. Here is what he told me. He said the 64.85 was the value of fractional shares (I knew that already). He said I received a check back in August for $19. This was the value of fractional shares minus the $25 transfer out fee and minus several other fees that i apparently owed. He really got rude when I asked him if this was considered a capital gain distribution, why this wasn't listed on page 1 of the dividends and distributions section of the 1099. He said to consult a tax attorney and if there was an error to get back to him.

Well, I'm about ready to give up and just go to HR Block or something. Can anybody suggest anything else. Should I just report it as a capital gain on my schedule D--finding the basis for each stock as Lorenzo stated above or should I get my taxes professionally done? Are there any low-cost alternatives?

Thanks everybody.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58785 of 121351
Subject: Re: Another newbie question Date: 2/11/2002 5:25 PM
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He really got rude when I asked him if this was considered a capital gain distribution, why this wasn't listed on page 1 of the dividends and distributions section of the 1099.

Ignoring the rudeness, I think we've finally got to the root of the issue. The $64.85 is not a dividend, nor it is a capital gain distribution. It should not be on a form 1099-DIV. Instead it is gross proceeds from the sale of securities, and should be reported on form 1099-B.

Capital gain distributions are a special type of dividend from a mutual fund. The fund figures out its gain or loss on selling securities, and passes any net gain to the fund owners as a captial gain distribution.

The gross proceeds (which is what you have) is only part of a capital gain calculation. As has already been discussed, its the sales price of a stock. In your case, it is for fractional shares of stock. But that's only what you received for your shares. It doesn't take into account what you paid for those shares. Once you do that, you can figure out if you have a gain or a loss. Lorenzo has given you the way to figure out what your cost is for those fractional shares.

Since your broker more than likely uses substitute forms, it may be a bit hard to decipher exactly what form they are reporting each item on. But look around anything that has the $64.85 and see if it says something about being a 1099-B.

--Peter

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Author: berkeleyroad One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 58921 of 121351
Subject: Re: Another newbie question Date: 2/13/2002 3:54 PM
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Lorenzo and Peter,

This is just a HUGE thank you for all of your help. Because of your helpful responses to my posts, I was able to complete my tax returns by myself. Thanks a million. It is posters like you who make the Fool boards such a valuable place.

Thanks again!!

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