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Author: WiscFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120801  
Subject: First Time With Schedule D Date: 2/25/2000 10:23 PM
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Warning: long post with lots of math!

I have capital gains from the sale of stock for the first time, and I think I understand almost everything I need to complete schedule D, but I'd like to run a few things by you guys.

Most of my transactions are pretty straightforward, except a couple. Could you look over my figures?

a) I bought 18 shares of GPS in June, 1998 at 53.8125, 9.99 commission,
for a total cost basis of $978.62. In Dec. it split 3:2, so then I had 27 shares (18*3/2) at 35.8750 (53.8125*2/3). So far so good. Now in June, 1999, it split 3:2 again. That gave me 40.5 shares (27*3/2) at 23.9167 (35.8750*2/3). Those shares got divided, of course, into 40 whole shares and a cash-in-lieu, so I divided my commission into:
40 shares 9.87 (9.99/40.5*40)
.5 shares 0.12 (9.99/40.5*0.5)
Later, I sold the 40 shares as well, so I enter 2 lines on schedule D, line 8 (both were long term since the original buy date was 6/1/98).
40 shares sold with cost basis $966.54 (40*23.9167+9.87) and
cash in lieu with cost basis $12.08 (0.5*23.9167+0.12)

I think the Fool's examples computed a new cost per share which included the commission, which perhaps would have been an easier way to do this, but it seemed like an extra unnecessary column in the spreadsheet at the time. I'm doing it right, though?

b) I hope you're still with me, since part a was just a warm-up.
I bought 41 shares of T in 1997 at 48.4375, and 32 shares of TCOMA in 1998 at 30.8125, both with 9.99 commission. In March, 1999, the two companies merged, giving me 24.8224 shares of T for my 32 TCOMA (the magic number was .7757, if you're wondering). This works out to 39.7222 per share (not incl. commission). Of course there was a cash in lieu for the fraction, so I divided the commission into
24 shares 9.66 (9.99/24.8224*24)
.8224 shares .33 (9.99/24.8224*0.8224)

Now comes the fun part. A month later, T splits 3:2. Remember I had 41 shares originally, and received 24 more in exchange for my TCOMA, for a total of 65. A 3-for-2 split gave me 97.5 shares. So I got another cash in lieu --lucky me ;). Then I started to wonder, what is the basis for the .5 share? I decided to keep the two lots separate, but I'm still not sure if this is right.

41 shares at 48.4375 became 61.5 shares at 32.2917, which broke down to
61 shares with 9.91 commission and
.5 shares with 0.08 commission

24 shares at 39.7222 became 36 shares at 26.4815.

Later, I sold the entire lot of T (all 97 shares). If all above calculations are correct, I enter on line 1:
cash in lieu from the merger, cost basis $33.00 (0.8224*39.7222+0.33) -- just missed the cutoff for long term gains by 3 weeks.

And on line 8:
cash in lieu from the split, cost basis $16.23 (0.5*32.2917+0.08) and
97 shares sold, cost $1979.70 + $962.99 = $2942.69 (totaled the two batches) and a buy date of "various".

c) Ok, how exactly do I enter my descriptions (in general) in column a? The full company name, or abbreviations OK? Or stock ticker? There really isn't a whole lot of room to write in there, especially on my state form. What about the cash-in-lieu's? Do I have to write out "cash in lieu for Gap, Inc." or what?

Thanks for letting me take advantage of your collected wisdom.

WiscFool
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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30084 of 120801
Subject: Re: First Time With Schedule D Date: 2/26/2000 11:56 AM
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<<Warning: long post with lots of math!>>

Warning: Short answer with no math checking. Please understand that most of the folks who are kind enough to visit and respond to questions here have only limited time. So trying to break down various computations for YOUR specific return doesn't really provide the rest of the community with any knowledge or understanding. I'll be glad to take a look at your theory, and help you out there. But there is just no time right not for detailed math checks. At least I don't have the time. Perhaps some other giving Fool will look at your numbers and help you out specifically. But I'll be happy to speak to you in theory.

<<I have capital gains from the sale of stock for the first time, and I think I understand almost everything I need to complete schedule D, but I'd like to run a few things by you guys.>>

There are a lot of articles in the Taxes FAQ area that you might want to read in order to supplement your understanding of the issues. Also, don't forget to read the instructions for Schedule D. They contain a lot of good stuff.

<<a) I bought 18 shares of GPS in June, 1998 at 53.8125, 9.99 commission,
for a total cost basis of $978.62. In Dec. it split 3:2, so then I had 27 shares (18*3/2) at 35.8750 (53.8125*2/3). So far so good. Now in June, 1999, it split 3:2 again. That gave me 40.5 shares (27*3/2) at 23.9167 (35.8750*2/3). Those shares got divided, of course, into 40 whole shares and a cash-in-lieu, so I divided my commission into:
40 shares 9.87 (9.99/40.5*40)
.5 shares 0.12 (9.99/40.5*0.5)
Later, I sold the 40 shares as well, so I enter 2 lines on schedule D, line 8 (both were long term since the original buy date was 6/1/98).
40 shares sold with cost basis $966.54 (40*23.9167+9.87) and
cash in lieu with cost basis $12.08 (0.5*23.9167+0.12)

I think the Fool's examples computed a new cost per share which included the commission, which perhaps would have been an easier way to do this, but it seemed like an extra unnecessary column in the spreadsheet at the time. I'm doing it right, though?>>

It appears that you have already reviesed my articles on tax splits and spin offs in the Taxes FAQ area. I think that if you follow the examples, you'll be on track.

<<b) I hope you're still with me, since part a was just a warm-up.

Sorry...you just lost me. What I can tell you is that you'll need the various formulas that were used in the spin offs and split ups from the various companies to track your basis and compute your basis in the fractional shares. But when I got to the third paragraph of your explanation, my eyes glazed over. Sorry.

<<c) Ok, how exactly do I enter my descriptions (in general) in column a? The full company name, or abbreviations OK? Or stock ticker? There really isn't a whole lot of room to write in there, especially on my state form. What about the cash-in-lieu's? Do I have to write out "cash in lieu for Gap, Inc." or what?>>

You can use virtually anything that you described above. The Ticker, a description, whatever. In my practice, I show the total number of shares sold and the description (not ticker). But my computer program allows for a two-line entry.

<<Thanks for letting me take advantage of your collected wisdom.>>

Wish I could help you out with the math checking. I'd be happy to do so after April 17th.

TMF Taxes
Roy


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Author: WiscFool One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 30181 of 120801
Subject: Re: First Time With Schedule D Date: 2/27/2000 12:49 PM
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Sorry about the confusion. I didn't want you to check my math, just the theory. I only included the details to show what I was doing. I guess I included too much detail.

There are a lot of articles in the Taxes FAQ area that you might want to read in order to supplement your understanding of the issues. Also, don't forget to read the instructions for Schedule D. They contain a lot of good stuff.

I've already read them all. They are the basis for my understanding of the issues. And I have read the Motley Fool Investment Tax Guide.

Wish I could help you out with the math checking. I'd be happy to do so after April 17th.

Again, I don't need help with math. That's what the computer is for. Sorry to hear you can't help me at all.

WiscFool

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