Question: How do I find the cost basis on the International Business Machines stock that I sold last year after owning it and reinvesting dividends for 15 years?
Answer: Tax statements from your brokerages should be arriving over the next few weeks. And with these documents comes a big headache for many investors: how to figure the original cost basis on stocks that were sold during the year.
Tracking the cost basis of your investments is extremely important at tax time.
The cost basis is how much you paid for a stock, including reinvested dividends. The cost basis, along with the price at which you sell, determines how much tax you pay on your capital gain or how much of a deduction you receive for a capital loss on your investment.
Calculating the cost basis on stocks, especially those purchased many years ago and after reinvesting dividends, throws off many investors. The best thing to do is to track the cost basis starting when the stock is bought so it will be handy when the stock is sold, even many years later.
There’s actually a development all investors should know that will start solving the whole cost basis headache beginning this year. For stocks bought in 2011 and beyond, brokerages are required to track the cost basis for customers and report it at tax time. This is a dramatic change in the brokerage world that will put the burden of calculating the cost basis on brokers — not investors.
However, that doesn’t help regarding IBM shares bought 15 years ago. Here’s what you need to do:
*Get the date that you bought the stock. There’s no shortcut for this. Hopefully, you have documents showing when you added the stock to your portfolio. If not, you’ll need to contact your broker, if he or she is the one…