"confused man" <bfbj[at]iup.edu> wrote in message
news82dnRTOcLWZGZTfRVn-uA[at]adelphia.com...
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Like a few others who participate here, I am tax professional (with more
than 20 years experience). Your question is akin to asking - will a pencil,
paper and an understanding of math work for me! The answer is yes,
providing you understand the information needed to properly address the
specifics of the situation. For example, in a DRIP, as your dividends are
reinvested you pay tax just as though you had gotten the dividend in cash
then turned right around and bought more stock - this results in the number
of your shares in the investment as well as your basis increasing. If you
understand this concept and are capable of doing the math then you could do
your return using pencil and paper, or TT, or TaxAct, or Tax Cut, or any one
of a number of pretty good, low cost self help tax programs.

The problems for most folks come in one of three forms:

1 - they don't understand the concepts and consequently can't do the
necessary math (the math itself can be done by most 8th graders, its the
concept that loses most people - IMHO);
2 - they fear they will do it wrong and either get audited or unnecessarily
overpay;
3 - they don't have the time or desire to do it themselves.

The primary problem with any but the simplest of returns, when done by the
taxpayers themselves, is that with the complexity of today's tax code, the
likelihood exists that an untrained person won't be aware of all the nuances
that impact their specific situation. NOTE - I said with all but the
simplest of returns, not all returns!

In your situation, I'd recommend you get a copy of TT, prepare your return
as best as you can, THEN pay a couple of hundred to meet with a pro and
compare what you get from them with what you can yourself. This way you
will know if you are capable of doing it and doing it right. Then, in later
years, you'll feel comfortable doing your own.

Gene E. Utterback, EA

confused man wrote:
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Almost, but you can't use true "average cost" basis with individual
stocks, just mutual funds. At least not a simple "add up the total cost,
divide by number of shares, use that as the average price for all of
your sales." There are simple examples where that does work, but it's
not the general rule. See the discussion below on using "various" on
your tax return for an explanation why.

It sounds like you know this but: when figuring out what you've sold,
you use "FIFO" - first in, first out - if you didn't specify lots to
your broker at time of sale. You start with the oldest batch first, and
keep going until you hit enough shares to match the amount sold. So in a
sale where you don't close out your DRIP stock position you might have
all long-term gains. In one where you close it out entirely you usually
have at least one short-term gain, for the div reinvestments within the
past 12 months.

When filing your return you might in effect do some averaging if you
enter it as a single transaction with "various" purchase dates....


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It's a shortcut to avoid entering a lot of transactions on Schedule D of
your tax return.

Let's say you sell 103.333 shares of a DRIP stock that was bought in
three lots as follows:

100 shares original purchase
2.222 shrs dividend reinvestment
1.111 shrs dividend reinvestment
then:
sold 103.333 shares XYZ Corp 11/22/04

And let's say you have only LONG-term gains/losses. Instead of entering
this as three sales transactions for the three lots of stock, the IRS
(and TurboTax) allow you to do a single entry. You total up the purchase
prices for the lots, including any commissions, and enter that as your
purchase price. Under the date of purchase, you put "various" instead of
a single date. This is OK as long as you enter the combined transaction
in the right section of Schedule D - meaning, under the long-term or
short-term section of the form. In Turbo Tax you can do this by
specifying long or short using a little pull-down on one of the columns
in the worksheet where you enter sales (at least that's how it used to
be, haven't used TT in awhile).

Keep in mind though that you always need to divide the lots into batches
of long-term and short-term shares. You can't just combine everything
and stick it under one or the other. So with stocks that you've kept in
DRIPs for a long time you won't have all long-term gains, like my
example. Instead you'll have the last couple dividend reinvestments
(from within the past 12 months) as "short-term gain/loss" and the
original puchases and most of the dividend reinvestments as "long-term
gain/loss". Now in effect you're using an average cost for these
"various" lots, but your average cost basis for the two lots will be
different. And when calculating it you're ignoring any shares that you
still hold.

This can all be a huge headache when you have a lot of stocks and
they're all in DRIPs, which is why I usually avoid enrolling stocks in
DRIPs, though I like the basic idea.

-Tad

Thanks for your reply...

In terms of long vs. short term capital gains... I assume your talking about
more than 1 year vs. less than 1 year? is this correct? Will I need to input
these trasactions separately? As for your last question I don't think I
understand... In my DRIP account I have sold some positions... don't I just
take from my first purchases and pare them up with the sell till I get the
right amount of shares, then average the cost?

Also, someone, in a previous reply mentioned using a date of "Various" what
does that mean?

Thanks so much for your help,
Confused Man


"Tad Borek" <borekfm[at]pacbell.net> wrote in message
news:ucsOd.3263$aW6.85[at]newssvr22.news.prodigy.net...
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confused man wrote:
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Put it this way, I use what amounts to the professional version of Turbo
Tax (another Intuit product) and I'd RATHER do a return with those items
in TT, it's cheaper software. It should handle it just fine.

A snag you might hit is when entering sells from stocks that were
DRIPped, because you need to know what to enter. If you've kept the
records along the way that's half the battle. The other half is
understanding the distinction between long-term and short-term capital
gains, and understanding how to enter partial sales of a position that's
been built up over time (ie which shares get sold from all the lots
you've purchased). You OK with that stuff?

-Tad

"confused man" <bfbj[at]iup.edu> wrote:

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TurboTax will handle the mechanics of filing the return very well.
-- Doug

I've used Turbotax for my taxes for many years, and have found that it
works great for calculating capital gains. You will have to divide the
shares sold into long-term and short-term lots. When entering the
purchase date, just use the word "various".

Dave

Hello all,

I have a good amount of capital gains that I need to take care of this tax
year as well as DRIPs with sharebuilder.com etc. I have kept detailed
records of my dividend distributions, as well as buy/sell dates

In addition I have income from a Pension, in which I recieved a Form 1099-R

I'm curious knowing this information... will Turbo Tax work for me
correctly, or do I need to shell out hundreds of dollars to go see an
accountant?

Thank you all so very much,
Confused Man