Tax implications of reinvesting dividends

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Cortopassi
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Re: Tax implications of reinvesting dividends

Post by Cortopassi » Mon Jun 18, 2018 11:15 am

From Bogleheads, seems reasonable. There's more out thee about this than I gave consideration to.

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Re: Tax implications of reinvesting dividends

Post by barrett » Mon Jun 18, 2018 11:27 am

Cortopassi wrote:
Mon Jun 18, 2018 11:15 am
From Bogleheads, seems reasonable. There's more out thee about this than I gave consideration to.

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I had to do something similar to the "Boglehead solution" years ago when a little bit of Sears stock that I inherited from my mom split into three different companies and I had no clue what her cost basis was (pretty sure the shares actually were handed down from my grandmother!). At the time a Fidelity rep helped me come up with some kind of reasonable guesstimate... but I don't think he was actually taking into account that the shares might have been from the 1950s!

This would seem to be one of those areas where the agency just doesn't have the resources to really counter your numbers. But, yeah, download as much of the cost info as you can, unless you want to play a game of "take a stab at the cost basis" when you are retired. Also, you don't want to leave a shit show for your heirs to have to figure out!
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Re: Tax implications of reinvesting dividends

Post by dualstow » Mon Jun 18, 2018 12:48 pm

Dieter wrote:
Mon Jun 18, 2018 10:39 am
...

"
The new reporting rules, signed into law as part of the big bailout legislation in 2008, are being phased in over a few years and don’t necessarily apply to all of your taxable holdings: banks and brokers were required to begin tracking and reporting the cost basis of stocks in taxable accounts bought in 2011 or later. Mutual funds, dividend-reinvestment plans and certain exchange-traded funds purchased beginning in 2012 are subject to the new rules.
"
Is that the covered/noncovered stuff or is that something else altogether?
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pugchief
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Re: Tax implications of reinvesting dividends

Post by pugchief » Mon Jun 18, 2018 1:27 pm

sophie wrote:
Mon Jun 18, 2018 7:31 am
Thanks bedraggled! I think that answers my question. It is Scenario #2, and you WILL be double taxed on the dividends unless you track them and provide the records to the IRS when you go to sell.

That's a headache I think I'd rather not deal with, and I bet the federal government is scoring big time on the fact that few people are likely to do what bedraggled did - instead they'll just pay the extra tax. As I'm pretty sure I've done unwittingly several times in the past.
Pretty sure that just isn't the case. They should be tracking that for you.
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Re: Tax implications of reinvesting dividends

Post by Xan » Mon Jun 18, 2018 2:36 pm

Yes, I've never seen this not tracked. Haven't used Fidelity specifically though.
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sophie
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Re: Tax implications of reinvesting dividends

Post by sophie » Tue Jun 19, 2018 8:53 am

I think the IRS is only looking to have brokers track dividends to ensure tax reporting in the year that they're generated. There's nothing that says they have to track reinvested dividends over the years to add into your cost basis when you sell. And it appears they are NOT doing that. Cost basis for all reinvested dividends is shown as zero. Technically that's correct in a tax-advantaged account, but it is a big problem in a taxable account. Just in case y'all don't believe me here's a screenshot of a stock with one initial purchase and the rest are reinvested dividends (in a tax-advantaged account). Total cost basis is the sum of the basis per lot shown here (i.e. exactly equal to the cost basis of the initial purchase).

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I have all my accounts set to show actual cost basis, not averaged cost basis, so that isn't the problem. BTW Fidelity has an interesting new option for taxable accounts: you can set sales to "tax sensitive" which will automagically select lots to harvest losses if you have them, and otherwise minimize capital gains. Nice, as long as you're not reinvesting dividends of course.
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Re: Tax implications of reinvesting dividends

Post by dualstow » Tue Jun 19, 2018 10:50 am

sophie wrote:
Tue Jun 19, 2018 8:53 am
I think the IRS is only looking to have brokers track dividends to ensure tax reporting in the year that they're generated. There's nothing that says they have to track reinvested dividends over the years to add into your cost basis when you sell. And it appears they are NOT doing that.
I agree, except that, re:your last line: Vanguard does do that for me, all year long, except in my IRA.
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Xan
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Re: Tax implications of reinvesting dividends

Post by Xan » Tue Jun 19, 2018 11:18 am

I've just double-checked: Ameritrade keeps track of it too.
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Re: Tax implications of reinvesting dividends

Post by pugchief » Tue Jun 19, 2018 4:54 pm

Sophie,
You might want to call the broker that you are concerned about, ASK FOR A SUPERVISOR (to avoid an incorrect answer from a clueless rep), and see if your 1099 would include the basis for reinvestments.
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Re: Tax implications of reinvesting dividends

Post by sophie » Sat Jun 23, 2018 10:44 am

I contacted Fidelity. They show cost basis for reinvested dividends in taxable accounts, but not in tax-advantaged accounts (it will show as zero cost basis). I just had a dividend reinvestment show up (my canary in the coal mine experiment) and it does indeed list cost basis, and the total cost basis includes both original purchase and the reinvestment.

The cost basis for any purchase lot will also depend on whether you are set for average costs or actual costs. Also, if you switch to actual costs it will only apply to future purchases; prior purchases will continue to reflect average costs and you can't change this. And, once you switch to actual costs you can't switch back.

Phew! Why does this have to be so complicated. It would probably help if they had an info page explaining this.
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Re: Tax implications of reinvesting dividends

Post by dualstow » Sat Jun 23, 2018 11:08 am

sophie wrote:
Sat Jun 23, 2018 10:44 am
I contacted Fidelity. They show cost basis for reinvested dividends in taxable accounts, but not in tax-advantaged accounts (it will show as zero cost basis).
Oh. I should’ve stuck with my first instinct.
dualstow wrote:
Mon Jun 18, 2018 7:33 am
At Fido, I only have a solo 401(k), so I thought that was the reason they didn't update the cost with reinvested dividends.
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Re: Tax implications of reinvesting dividends

Post by pugchief » Sat Jun 23, 2018 12:02 pm

sophie wrote:
Sat Jun 23, 2018 10:44 am
I contacted Fidelity. They show cost basis for reinvested dividends in taxable accounts, but not in tax-advantaged accounts (it will show as zero cost basis). I just had a dividend reinvestment show up (my canary in the coal mine experiment) and it does indeed list cost basis, and the total cost basis includes both original purchase and the reinvestment.

The cost basis for any purchase lot will also depend on whether you are set for average costs or actual costs. Also, if you switch to actual costs it will only apply to future purchases; prior purchases will continue to reflect average costs and you can't change this. And, once you switch to actual costs you can't switch back.

Phew! Why does this have to be so complicated. It would probably help if they had an info page explaining this.
While showing the actual cost basis would be helpful in a tax-deferred account to track profit/loss, it isn't relative to the tax situation.
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