how do i calculate cost basis for reinvested dividends?

Divide your total basis by the number of shares purchased to find your original per-share basis.

The shares that you buy through dividend reinvestment have a basis equal to the amount of dividends you gave up to obtain them. By contrast, specific identification can allow you to choose shares with smaller gains, but you might not have held those shares long enough to get preferential long-term treatment.The key aspect of calculating cost basis for DRIPs is that a little recordkeeping along the way can save a lot of time later on. The only real difference is the purchase happens automatically.

You pay taxes based on the selling price of your shares minus your One way to get wealthy in the stock market is to take dividend-paying stocks and reinvest the quarterly payments they make into buying more shares. Let’s use the Ford example from earlier: 1,000 shares at $14/share with a $10 commission.

Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.One way to get wealthy in the stock market is to take dividend-paying stocks and reinvest the quarterly payments they make into buying more shares.

Cash dividends do not lower the cost basis of an investment, either when you actually receive cash or when you use the proceeds to purchase new shares. But at tax time, it can difficult to calculate your cost basis when you eventually decide to sell the shares you've accumulated over a lifetime of dividend reinvestment.

The calculation of cost basis becomes confusing when dealing with mutual funds because they often pay dividends and capital gains distributions usually are reinvested in the fund.

Reinvestment of dividends works just like a new purchase of stock shares.

In that case, you'll have to choose which method to use in selecting the exact shares that you sell. Dividend reinvestment plans, or DRIPs for short, make it simple for investors in many dividend stocks to use this strategy.

Often, if you have no immediate need for the money, it's easiest to simply reinvest the dividends to buy more shares of the stock.

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Using a method like first in, first out will generally get you long-term treatment for any gains or losses, but if the stock has risen over time, that method will sometimes lead to larger taxable gains than others. You bought 100 shares of a stock for $1,000 in 2008, and that year had dividends of $100 reinvested. In that case, you'll have to choose which method to use in selecting the exact shares that you sell.

Remember that dividends are the portion of the profits a company pays out to its investors (shareholders).

Reinvesting dividends is a powerful approach for compounding both total portfolio value and cash flow over the long term.

Dividends and capital gain distributions that you receive in cash do not affect the basis per share of existing shares. (the_motley_fool)

It's critical to increase your cost basis by the amount you've been taxed for your dividends along the way, or else you'll overpay on capital gains taxes at sale.What gets tricky is if you decide to sell only a portion of your shares.

The Motley Fool has a Quotes delayed at least 15 minutes. Stock Market How to Calculate the Cost Basis for Mutual Funds With Reinvested Dividends You have scored a nice profit on you mutual fund and now comes the hassle of figuring out the taxes. For all practical purposes, no.

It can even save you from making what could become a costly tax mistake when you sell your shares.Stock Advisor launched in February of 2002. In the example, your cost basis would be $20, $25 and $14.29 per share for each respective reinvestment. Dividend reinvestment results in a cost basis that is higher than the actual dollar … If you do the math, you’ll see that the cost basis is now $9.99 per share. About Us

©2020 FOX News Network, LLC. Each time you reinvest dividends or capital gains, you are purchasing additional shares; these purchases may change basis for the total position, but not the per share basis of existing shares. Reinvested Cost Basis. Now that may not move the needle much, but there is a change to the cost basis of your entire position: In contrast, when a company retains its earnings and foregoes paying dividends, the investment returns will presumably be in the form of an increasing share price (at least that's what its investors are counting on).