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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Re: New account - strategy for taxes? Date: 4/17/2013 6:24 AM
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My question is about receiving dividends in a taxable account. When opening a new investment account, is it best to NOT reinvest the dividends automatically, but collect the dividends for a few months or for a year and then invest the total dividends into the stocks of my choosing? It seems that it will help track the cost basis easier.

There's good news on the DRP basis front. You can now use average cost basis for shares acquired through a DRP after 2010:

http://www.irs.gov/irb/2010-47_IRB/ar08.html

Seems to me that choosing between automatic reinvestment and controlled investment of cash accumulated through dividends would be largely a question of which will cost less in fees.

You mentioned REITs. A caution here. They tend to throw off a lot of ordinary income that isn't qualified dividends. Remember that even if you're reinvesting the dividends are taxable income in the year received.

Phil
Rule Your Retirement Home Fool
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