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I am about to start my first DRIP, and was reading about all the tax calculations one needs to do for DRIPs.

Does it make sense to choose not to re-invest the dividends, and does that save oneself a lot of hassle during tax-time? As I see it, re-investing dividends is just like sending in some extra cash every month. If I am doing that anyway, then why not have the dividend sent to me and thus avoid the hassle of dealing with fractional shares, and purchases at odd times, etc.

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You wrote: "Does it make sense to choose not to re-invest the dividends, and does that save oneself a lot of hassle during tax-time? As I see it, re-investing dividends is just like sending in some extra cash every month. If I am doing that anyway, then why not have the dividend sent to me and thus avoid the hassle of dealing with fractional shares, and purchases at odd times, etc"

Reply: You don't really save much effort by not re-investing dividends in a DRIP plan (and just investing additional amounts monthly). You end up with 12 monthly (4 quarterly) payments anyway. This is what I do. I keep the yearend statement from each DRIP. At the bottom I put the "cumulative" cost of all shares purchased. When I sell, I only sell "all" shares. I then divide up shares into long-term and short term gains and report them separately on the tax forms (as two entries). Note H&R Block allows one to put "various" in the date acquired block. I have the proper documentation to substantiate my purchases. I even put each purchase in a spread-sheet for my own purposes. I could choose to print out the spreadsheet and attach to the tax form, but I have some sympathy for the person that has to keypunch my hard-copy return in. If audited, I have complete records (annual statements and spreadsheets). What is the real difference in dealing with 16 entires per year (12 months + 4 dividends) and 12 entires (12 months).
With the low cost brokerages and higher costs of some DRIP plans, I've drifted away from DRIPs. It is easier to track one/two purchases per year than 12+ purchases.
Rod
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[[I am about to start my first DRIP, and was reading about all the tax calculations
one needs to do for DRIPs.]]

Right...they can get a bit messy

[[ Does it make sense to choose not to re-invest the dividends, and does that save
oneself a lot of hassle during tax-time?]]

In may save you some hassle, but it really defeats the purpose of a DRIP investment.

[[ As I see it, re-investing dividends is just
like sending in some extra cash every month. If I am doing that anyway, then
why not have the dividend sent to me and thus avoid the hassle of dealing with
fractional shares, and purchases at odd times, etc.]]

It's not that much of a hassle. And if you are sending in addinional money anyway, you will still have the same recordkeeping hassle. It's not difficult, just a bit time consuming. But you can set up your own spreadsheet and track the purchases pretty easily.

And the hassle doesn't really come when you buy, but when you sell. When you sell out your DRIP stock, if you sell it ALL at one time, many of your tax reporting hassles go away.

Some time it takes work to get rewards.

TMF Taxes
Roy
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