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Author: Rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121351  
Subject: Re: Dividend Reinvestment - A Tax Nightmare? Date: 7/6/2008 6:30 PM
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Could someone please explain why DRiPs are such a tax nightmare? Can't I just keep a "cost-average" and then use that number to determine my gain or loss when I buy or sell?

Right. But have you considered just what exactly is the "average cost"?

500 shares @ 16.92
1.4563 @ 17.25
1.3423 @ 18.97
0.9452 @ 20.24
2.7458 @ 15.87

What is your average cost? Dollars to donuts not 1 person out of 10 can compute this accurately. Oh yes, those fractional shares are purchased 4 times a year over 10 or 20 years. And don't forget that you have to adjust your basis for the taxes you paid on the dividends throughout your holding period.

It's a nightmare. When my mom went into the Alzheimer's home I had to track down the cost basis for 30 years of PG&E drips. Impossible. Normal human beings cannot keep & maintain accurate records of all these little transactions over half their lifetime.

At least with a mutual fund, they (presumably) can keep track of it for you.
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