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Author: mfishb Two stars, 250 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 27818  
Subject: DRIPs and taxes Date: 6/7/2012 4:59 PM
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Forgive me if this has come up before, as I think likely it may have.
How do you reckon the cost basis of a stock you have been acquiring for years in a DRIP. I haven't a clue and as a result feel locked in with no way to sell any of this stock.
Thanks in advance,
-Menachem
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Author: blesto Big red star, 1000 posts Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27739 of 27818
Subject: Re: DRIPs and taxes Date: 6/7/2012 7:57 PM
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You do sound like you have a dilemma.

Are you looking to sell some or all of your shares?
The real trick with DRIPs is maintaining detailed records. You should also go over the prospectus for your Particular plan. Plans do vary and have different tax consequences.

If you're having trouble collecting your records, contact your Plan Administrator and they may be able to help.

Anyways here's some info and links;

http://www.fairmark.com/capgain/basis/drip.htm
This is the last paragraph, more info at the link
Keeping records

Figuring out your basis and holding period on any particular dividend reinvestment is usually not too hard. But if you reinvest dividends over a number of years, it may be very difficult to reconstruct the basis of your shares unless you keep records as you go along. It's a good idea to set up and maintain a good system of records for your stocks even if you do not participate in a DRIP. If you do use a DRIP, keeping good records is truly a necessity.



http://www.amstock.com/shareholder/sh_tfaqs.asp
11)How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?

The basis of the stock you sold is the cost of the shares plus any adjustments, such as sales commissions. If you have not kept detailed records of your dividend reinvestments, you may be able to reconstruct those records with the help of public records from sources such as the media, your broker, or the company that issued the dividends. If you cannot specifically identify which shares were sold, you must use the first-in first-out rule. This means that you deem that you sold the oldest shares first, then the next oldest, then the next to the next oldest, until you have accounted for the number of shares in the sale. In order to establish the basis of these shares, you need to have kept adequate documentation of all your purchases, including those that were through the dividend reinvestment plan. You may not use an average cost basis. Only mutual fund shares may have an average cost basis.


One more link for good measure and some good info;
http://www.buyandhold.com/bh/en/resource_center/taxes/taxfaq...
This particular site seems to be sponsered by the Fool.

No matter how you slice it , though, you have some work to do. But don't let enormity of it intimidate you.
You can do it!

I hope this helps.

blesto

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Author: Howie52 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27740 of 27818
Subject: Re: DRIPs and taxes Date: 6/10/2012 8:42 PM
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Money spent to purchase shares of stock less any fees paid by you
are added together with the dividends re-invested form the total
cost basis. If you want to sell the entire position, that is all
you would need.
If you sell a partial position and want to sell selected shares
then life gets more complicated. You can calculate the average cost
basis easily enough - but selling selected "lots" requires the
full documentation for those lots.

Howie52

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Author: mfishb Two stars, 250 posts Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27741 of 27818
Subject: Re: DRIPs and taxes Date: 6/12/2012 3:53 AM
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I'm talking about stock in a DRIP for well over ten years. In terms of records, I have end of the year statements for all years, which include the entries for all four quarters, but we are talking about well over forty different purchases each at a different price. Am I really expected to list all these to get to a total cost basis? Also, if I reported the dividends based on each year's 1099, if I modify cost basis based on DRIP purchase, aren't I setting myself up to be taxed twice on those dividends?
I just saw that in the new 8949, there is an option to combine several purchases and say "various" in column (c) date acquired. Is there a reasonable way to figure an overall cost basis (or two - long and short term) to go with such an entry?
Thanks for any advice you can provide.
-Menachem

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Author: blesto Big red star, 1000 posts Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27742 of 27818
Subject: Re: DRIPs and taxes Date: 6/12/2012 8:40 AM
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Am I really expected to list all these to get to a total cost basis?

Yes.
If you're selling it all, and.... if you're only selling a portion of your shares you list all the parts for that portion.

Also, if I reported the dividends based on each year's 1099, if I modify cost basis based on DRIP purchase, aren't I setting myself up to be taxed twice on those dividends?

I think I understand what you're asking. You shouldn't be taxed twice.
When you receive the dividend, it is taxed. The dividend then pays for the share. That is the cost basis for that share (or fractional share) when that share is bought. When you sell that share, you add or subtract the current value that you sold at, (depending if the share is higher or lower than when first purchased) if your basis was higher you get a tax benefit and if your basis is lower you just pay tax on that difference. Depending on how many shares you sell and at what price they were bought at, you may find some shares were sold below cost basis and some shares sold higher than the cost basis. You need to figure it out so you don't get overtaxed (or undertaxed, that's when the IRS can really be a pain.)

This is all only my opinion (and opinions are like elbows, everybody has one) based on my experience with DRIPs, as for the rest you really need to consult a Tax professional to make sure you fill out all the correct forms properly.
Using a good Tax software program can help too.

best,
blesto

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Author: kmb123 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27743 of 27818
Subject: Re: DRIPs and taxes Date: 6/21/2012 4:10 PM
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Is there any option to say, gift a full position of $10,000 or less established by DRIPping to my child and get out of having to do the work of finding the cost basis?

Unfortunately I did not keep good records for OKE which changed from ComputerShare to Wells Fargo so no clue how I'm going to handle the sale when I'm ready.

Sounds as though selling the whole lot will at least be partially easier?

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Author: dfish Big red star, 1000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27744 of 27818
Subject: Re: DRIPs and taxes Date: 6/21/2012 5:43 PM
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Gifting will not help. When you give your shares to someone, they also must assume your cost basis.

If you leave shares to someone in your will, they would receive the stepped-up cost basis.

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Author: blesto Big red star, 1000 posts Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 27745 of 27818
Subject: Re: DRIPs and taxes Date: 6/21/2012 10:44 PM
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Is there any option to say, gift a full position of $10,000 or less established by DRIPping to my child and get out of having to do the work of finding the cost basis?

Ah ha! That's where a certified Tax expert can help. That may be a possibilty. Here's a good article.
http://www.schwab.com/public/schwab/resource_center/expert_i...

Unfortunately I did not keep good records for OKE which changed from ComputerShare to Wells Fargo so no clue how I'm going to handle the sale when I'm ready.

Have you contacted Wells Fargo? They should have some sort of record and advice. Do that first.
The IRS runs into this problem more than we realize. There's always a way. You can contact the IRS and talk with someone personally, or a Tax Advocate. You need to find someone who knows the rules.
http://www.irs.gov/advocate/index.html
&
http://www.irs.gov/advocate/content/0,,id=150972,00.html

Just going through a few of the current rules can be daunting.
http://www.irs.gov/irb/2010-47_IRB/ar08.html#d0e391
&
http://www.irs.gov/irb/2010-05_IRB/ar09.html#d0e2768

IMHO and that's what it is; my opinion is, when you find the right forms and fill them out proper with all available info it'll be all Okay.

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