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Financial Planning / Tax Strategies


Subject:  Re: Taxes and dividend reinvestment Date:  6/20/1997  11:20 AM
Author:  TMFTaxes Number:  57 of 127753

<<I am confused re: cost basis for taxes w/ dividend reinvestment. I have reinvested all my dividends and will be selling stocks soon. The amount of the dividends reinvested have been small. But how do I identify stocks for cost? Or do I need to? I have say 100 shares of GM purchase originally and a couple shares purchased w/ dividends in the year since I purchased the GM stock. I will selling all of my shares. I have searched the help files and find no answer.>>

Selling shares in a DRIP plan can be a REAL pain. But you said the magic words: "you are selling ALL of your shares".

When you sell all of the shares, the computation is easy. It works like this:

1. Add up cost of your original stock purchase (plus any subsequent block purchases OTHER THAN reinvested dividends)
2. Add to that the cost of any reinvested dividends over the term of the DRIP plan.

That will give you your basis for ALL of the shares. Just like that.

If you were to tell me that you were going to only sell part of the shares, the computation would be much more complicated. You would probably be forced to use the FIFO (First In, First Out) method of accounting for the basis of the shares. Remember that since you are dealing with stock, the "average cost" method is NOT available to you. And since it is pretty difficult to "identify" shares in a DRIP plan, you'd be stuck with the FIFO method.

But since you are selling ALL of your shares, the computation is pretty simple. If you have any additional questions, please fire away.

TMF Taxes
Roy Lewis

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