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Dividend Reinvestment With Fee

Would appreciate confirmation that I'm doing this right. Delphi issued a dividend that got reinvested after they kept a fee. I'm using Q2005 Premium H&B. Here's how I ended up posting the transaction:

In my "Stocks" account, I pressed the "Enter Transactions" button and set the 1st window to "Reinvest - Income Reinvested". The dividend was $4.55 with $0.22 deducted for a service fee. $4.33 got reinvested.

In the "Dividend" window, I originally put $4.55 and the number of shares. After placing $0.22 in the "Commission" window, I ended up with a total value of $4.77; $0.22 more than the total dividend as well as a cost per share that was too high. After I saw how the program handled the $0.22 (made a separate line entry, marked the action as "MiscIncX" and placed it into the "_Div Inc" category, I feel back to the first screen, changed "Dividend" amount to $4.33, and hit enter. Now the number of shares bought were correct, the price per share was correct, but I was still uncomfortable about "Dividend" being less than what the gross dividend was on the statement. So I ran a Tax Schedule Report and looked at "Dividends". Sure enough, there were two entries, one for "Dividend Income" of $4.33 with an identified action of "ReinvDiv" and another beneath it for $0.22 identified with that "MiscIncX" action.

I trust everything will properly flow to the tax schedules as planned. Are these entries correct?

Reply to
John Gregory
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I can't tell you if your entries are "correct"; but I believe there is another approach which, to me, is closer to what occurred in the real-world. Use three transactions.

Dividend. $4.55 MiscExp $0.22 Buy $4.33

Reply to
John Pollard

I'm struggling a bit with this one - here's my line of thought:

Seems the commission should become a component of the cost basis for the added shares.

Doing it QW's way or as JP suggests, the comission does not roll into the cost basis. You get the $4.33 + $0.22 reporting as taxable dividend income and you get shorted on capital gains on sale. The $0.22 could possibly be deducted as investment expense - subject to

2% AGI limit.

Think things come out correct if you;

  • Record total dividend of .55
  • Record a Buy with .33 to security and * Record a Buy with $4.33 to security and $0.22 as commission for the Buy [all in the same transaction]..22 as commission for the Buy [all in the same transaction].
  • This rolls the commission into the cost basis while still giving you .55 as taxable income.

Am I correct on the impact to cost basis??

Reply to
JM

Let me make sure I understand here, the window designed to handle dividend reinvestments on Q2005 HB can't mirror the real-world transaction. It records the dividend received properly but stumbles when handling the reinvestment, throwing the commission or service fee into a category that shorts my cost basis. Makes me a little uncomfortable.

I think your method, JM , makes sense. John, I'm not sure I see how yours is any different from my original post, other than the fee goes to "MiscExp" as opposed to "MiscIncX" unless yours flows to a report that would capture these by stock and permit them to be added manually to arrive at the stock base when sold. I posted the way JM suggested than ran a report of the transaction history of Delphi. There's a column for "Commission" so life will be easier than the way I originally planned.

Reply to
John Gregory

Have not personnaly encountered this situation - fee on reinvestment of dividends.

My rationell is that the fee/comission on a security purchase becomes part of the cost basis.

Would not the same apply if you receive a dividend and then use the proceeds, less fee, to buy more shares?

Using QW06, I tested the transaction entry in various forms. I entered the fee, along with the Buy info, in the ReinvDiv transaction window and got the same results you described - two separate transactions were entered in the register; the buy and the MiscExp. The fee did not roll into the cost basis.

Reply to
JM

I've adjusted back to 2003 already using your suggestion. It's the least entries, makes the most sense, and shows up on that all-important stock transaction list that I'll have to use before I kick the bucket. Thanks to both of you for your help.

Reply to
John Gregory

John,

I have heard a lot about companies now charging for DRIP investments. The basis of a DRIP account is transaction-free dividend reinvesting.

I recommend moving your DRIPS to Sharebuilder or something... IMHO.

JS

Reply to
GWU Student

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