Cost basis for dividend reinvestment

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    Cost basis for dividend reinvestment

    For over a decade, I have purchased shares of a stock periodically, and have reinvested the cash dividends for more shares. Now I want to gradually sell off some shares, using the Specific Identification method. I have read up on how to calculate the cost basis, and have entered all the data needed in a spread sheet. (WHAT A PAIN!)

    http://www.buyandhold.com/bh/en/resource_center/taxes/taxfaq.html

    I have also learned how to communicate with my broker:

    http://www.fool.com/taxes/2000/taxes000818.htm

    Dividend reinvestments typically involve purchasing fractions of a share, e.g. .75 of one share in 9/2000 at $15 a share, or 8.25 shares in 3/2005 at $25 a share, etc.

    My questions:

    - I don't think it would be appropriate to instruct my broker to sell .75 share or 8.25 shares?

    - If not, how can I instruct the broker to sell these shares using the Specific Identification method?

    - Assuming that this can be done, do I have to account for each and every one of the shares sold this way in my tax filing? I.e., do I have to report .75 share's cost basis is $15, and 8.25 shares's cost basis is $25, etc.? (That would be a REAL pain.)

    BTW, I think my questiosn are applicable for mutual funds as well.
     
  2. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Cost basis for dividend reinvestment

    In Response to Cost basis for dividend reinvestment:
    [QUOTE]For over a decade, I have purchased shares of a stock periodically, and have reinvested the cash dividends for more shares. Now I want to gradually sell off some shares, using the Specific Identification method. I have read up on how to calculate the cost basis, and have entered all the data needed in a spread sheet. (WHAT A PAIN!) http://www.buyandhold.com/bh/en/resource_center/taxes/taxfaq.html I have also learned how to communicate with my broker: http://www.fool.com/taxes/2000/taxes000818.htm Dividend reinvestments typically involve purchasing fractions of a share, e.g. .75 of one share in 9/2000 at $15 a share, or 8.25 shares in 3/2005 at $25 a share, etc. My questions: - I don't think it would be appropriate to instruct my broker to sell .75 share or 8.25 shares? - If not, how can I instruct the broker to sell these shares using the Specific Identification method? - Assuming that this can be done, do I have to account for each and every one of the shares sold this way in my tax filing? I.e., do I have to report .75 share's cost basis is $15, and 8.25 shares's cost basis is $25, etc.? (That would be a REAL pain.) BTW, I think my questiosn are applicable for mutual funds as well.
    Posted by fairnsquare[/QUOTE]

    Dear fairnsquare:

    You are correct, it does apply to mutual funds and it is a GIANT PITA!That said, there is nothing wrong with supplying your broker with your spreadsheet and designating a particular fractional share as being sold in combination with other purchases, so long as the selected whole and/or fractional shares total the number of whole shares being sold (specific stocks must trade in whole shares, where mutual fund shares may be traded in fractions by sale back to the mutual fund).Unfortunately, the IRS has revised the Schedule D as an aggregation schedule with the details of stock and securities trades reported on Forms 8329, starting this year. While it insists that specific information concerning quantity sold, security sold, date acquired, date sold, cost basis and sales price be detailed for each block sold in each trade, it does permit for the use of "Various" for the date of purchase, but not for the sales date.  You will need to break out your trades between long and short term, at least, as they are reported on separate Forms 8329 and may NOT be commingled on the same Form 8329.
    As long as you conform to these strictures, you should be able to use the Specific Identification method, rather than the default method of first-in-first-out.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T.
    Tax Principal, Katz, Nannis + Solomon, P.C.
     
  3. You have chosen to ignore posts from fairnsquare. Show fairnsquare's posts

    Re: Cost basis for dividend reinvestment

    In Response to Re: Cost basis for dividend reinvestment:
    [QUOTE]In Response to Cost basis for dividend reinvestment : Dear fairnsquare: You are correct, it does apply to mutual funds and it is a GIANT PITA! That said, there is nothing wrong with supplying your broker with your spreadsheet and designating a particular fractional share as being sold in combination with other purchases, so long as the selected whole and/or fractional shares total the number of whole shares being sold (specific stocks must trade in whole shares, where mutual fund shares may be traded in fractions by sale back to the mutual fund). Unfortunately, the IRS has revised the Schedule D as an aggregation schedule with the details of stock and securities trades reported on Forms 8329, starting this year. While it insists that specific information concerning quantity sold, security sold, date acquired, date sold, cost basis and sales price be detailed for each block sold in each trade, it does permit for the use of "Various" for the date of purchase, but not for the sales date.   You will need to break out your trades between long and short term, at least, as they are reported on separate Forms 8329 and may NOT be commingled on the same Form 8329. As long as you conform to these strictures, you should be able to use the Specific Identification method, rather than the default method of first-in-first-out. Hope this helps in preparing your returns! Mark H. Misselbeck, C.P.A., M.S.T. Tax Principal, Katz, Nannis + Solomon, P.C.
    Posted by MASocietyofCPAs[/QUOTE]

    Thanks for the response, it's helpful. GIANT PITA indeed!!! LOL.

    The said stock has been held in a large investment firm's brokerage account. I should have a one on one with the broker. They probably have all the dividend reinvestment data. In any event, I plan to have all the cost basis updated in their database.

    If all the stock's cost basis data are updated at the brokerage, will TurboTax be able to access them? That may make it easier to identify and report the shares I sell.

    I'm unaware of the Form 8329, and this one doesn't seem to be the right one:

    http://www.irs.gov/pub/irs-pdf/f8329.pdf

    Help?

     
  4. You have chosen to ignore posts from MASocietyofCPAs. Show MASocietyofCPAs's posts

    Re: Cost basis for dividend reinvestment

    In Response to Re: Cost basis for dividend reinvestment:
    [QUOTE]In Response to Re: Cost basis for dividend reinvestment : Thanks for the response, it's helpful. GIANT PITA indeed!!! LOL. The said stock has been held in a large investment firm's brokerage account. I should have a one on one with the broker. They probably have all the dividend reinvestment data. In any event, I plan to have all the cost basis updated in their database. If all the stock's cost basis data are updated at the brokerage, will TurboTax be able to access them? That may make it easier to identify and report the shares I sell. I'm unaware of the Form 8329, and this one doesn't seem to be the right one: http://www.irs.gov/pub/irs-pdf/f8329.pdf Help?
    Posted by fairnsquare[/QUOTE]

    Dear fairnsquare:

    Sorry - typo - Form 8949 is the correct form.

    Hope this helps in preparing your returns!

    Mark H. Misselbeck, C.P.A., M.S.T., Tax Principal
    Katz, Nannis + Solomon, P.C.
     
  5. You have chosen to ignore posts from fairnsquare. Show fairnsquare's posts

    Re: Cost basis for dividend reinvestment

    Thanks for the correction. I'll check Form 8949. Hope it is not too complicated.
     
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