I purchase stocks over a period of three years through an employee stock plan. I also reinvested my dividends (DRIP). Every time I had enough money Etrade would purchase a stock for me, usually about one a month. Last June, I sold my stock and now have to report a cost basis for the stocks sold. This is absolutely a nightmare as i have about 36 different trades over the last three years. How on earth do I calculate this . I know about first in/ first out and all the other things you are supposed to do, but I find this impossible. HELP!!!!!!!!!
J.R.2007-02-02T12:43:40Z
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Your broker should be able to do this for you, or at least provide you with statements that will let you do it. If it is too much for you, an accountant will do it.
This is a pain, but if you treat it methodically and take your time, it'll be fine.
First, collect all your records. You'll need to know the date and amount of every purchase (assuming that you had only one sale). You'll also need to know the date and amount of dividends and reinvestments.
Fire up Excel and create the following columns: Date, Shares, $/Share, Total $. Depending on what your records have, you can calculate one of the last two.
Then, fill it out. For purchases, simply put down the date, number of shares, and $ (either $/share or total).
For dividends, you've already paid taxes on the dividend, itself (as shown as 1099-DIV). But you do need to track the reinvestment, so put down the date, number of shares, and $ for those, as well.
Now that you've made a nice spreadsheet, simply sum the "Total $" column. Unless there are fees, this is your cost basis.
You will then need to split this up into sections to determine short-term holdings (under 12 months, I believe) and long-term (over 12-months). If sorted by date, this should be easy. Get a sum for each of these two sections.
Then calculate the % which is short term/long term and use this to apportion your sales proceeds to each.
You should now have 4 numbers: LT cost basis, ST cost basis, LT proceeds, ST proceeds.
Then, put these 4 numbers of your tax return in the right place (schedule D, I think).
Don't try to complicate things or create confusion by throwing in "first in/first out" or "lots" UNLESS... you didn't sell everything.
If you didn't sell everything, then, yes, you should start at the oldest purchase and work down until you hit the number of sales sold. Use THAT as the cost basis.
You do have the right NOT to use "first in, first out" if you don't want. You can choose to sell some other "lot." However, once that lot is sold, you cannot sell it again.
Best to use "first in/first out." It'll make tracking easier, I think.
Did Etrade send you a tax statement? One should be coming to you soon. Form 1099 DIV will tell you what dividends were paid to you. Form 1099 B lists proceeds from sale or exchange of stock. My mutual fund company also sent me a form entitled "Average Cost Accounting Statement." They kept track of all of the purchases and sales, and gave me an average Gain figure. Check with your broker to see if they will do the same. This statement is not a tax form. I one case, I had to make a spread sheet using EXEL. I had to log in all of the purchases then had to log in sales, using the FIFO method. It is a pain but can be done if you kept all of your records.
If you have all of the statements, the cost should be easy to figure out. Otherwise, you could try the average cost basis. Take your total cost and divide by the number of shares purchased. Remember that reinvested dividends increase your basis.