How do you determine cost basis of stock bought over years through dividend reinvestment?

Answer 1

To determine your stock basis, add what you paid for the stock originally to all the dividends it paid out that you declaired on your tax return but never recieved because they were reinvested. The larger the basis, the better your tax situation when you sell, but the smaller your gain really was.

I have many clients that have a great deal of difficulty getting a correct basis for their stock. If they are having difficulty, imagine how difficult it is for the IRS to determine the correct basis. Many people, unfortunately, take a swag at the basis. It is extremely rare for the IRS to audit people on stock basis. I'm not saying it is legal to just put in any basis you want...quite the contrary. The IRS says that if you can't figure out the basis, the basis is $0. So, do your best at finding the basis and, if you don't have rock solid proof of your basis, hope the IRS doesn't audit you. Even if they do, they are usually reasonable about making a good faith estimate.

Answer 2

If you mean a mutual fund the average cost method is allowed - divide total costs including reinvestments to get average cost per share - multiply by shares sold. If you mean a single stock you have to add up all reinvested dividends and add to original cost. If you mean where to get these records look back at old tax papers for yearend statements - if none contact the companies for statement copies - if not available reconstruct annual reinvestments using any internet source for stock histories.

Answer 3

Since you've paid taxes on the dividends whether you've taken the cash or reinvested it, the dividends add to your cost basis, and yes, it's a pain to track but the only way to not cheat yourself when you sell.

Answer 4

As divis change in value every half year there is no way of doing this without logging the amount of every divi, the price of the share at divi time, the number of shares held then & the number of shares bought.

I prefer to look on shares bought with divis as a bonus - as long as the shares are still on the up

Answer 5

once you bought the units, the mutual fund business enterprise could have sent you a record of it. If no longer, touch them to deliver you that record, which will comprise the cost at which you acquire the mutual funds and it will factor in case you have a capital income or loss from the sale, then your accountant or tax agent would have the flexibility to assist you to with the desirable tax place of work standards for the sale.

Answer 6

You would know that from investment statements received over the years. You would have to know that annually for tax purposes unless you haven't traded those stocks.

Answer 7

Shares aquired through dividends are equivalent to the dividends, there is no cost basis. You sould only use the cost of the initial stock purchase.