When you purchase stocks, you duty to be able to track the costs of your investment to assess performance. Moreover, you must calculate the valuation rationale (as the complete investment price is termed) for funds tariff purposes. Calculating reward rationale is in reality extremely straightforward. Novice investors sometimes convert distracted when inventory dividends are involved. On the other hand, the confusion Testament Category itself elsewhere quickly once you be aware that dividends are universal process and are treated separately, much when reinvested to acquire aggrandized stock.
Instructions
1.2. Add up the costs of purchasing additional shares by reinvesting dividends. Include transaction costs (if any) to the purchase price of the additional shares. Don't include any dividends taken in cash instead of being reinvested.
Calculate costs based on dividend paying stocks when the dividends are paid in cash. The value of the stock doesn't change, so neither does the cost of the stock. Figure the cost basis by adding purchase costs (like broker's commissions) to the purchase price of the stock.
3. Add the total costs of shares purchased by reinvesting dividends to the cost basis of your investment prior to the dividend reinvestment. For instance, if you bought stock worth $4,000 and had purchase costs of $100, your starting cost basis is $4,100. Suppose you reinvest $200 in dividends with transaction costs of $5. The total cost of the stock you now own equals $4,305.
4. Calculate the cost basis after the stock is sold. Any cost basis computed while you still own the stock is incomplete because it does not include sales costs. Add sales transaction fees to the cost basis when the stock is sold. This is your total investment cost. It's also the amount you list as your cost basis when you figure capital gain/loss for your tax return.
