Have been accidentally reinvesting dividends in taxable

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yosef
Posts: 337
Joined: Tue May 24, 2011 2:10 pm

Have been accidentally reinvesting dividends in taxable

Post by yosef » Mon Mar 14, 2016 8:54 am

So I was reading through my statements this morning and discovered that my VCSH holdings have been reinvesting dividends and cap gains despite the entire account being set to "Transfer to settlement fund". This is in my (fairly new) taxable account; I had wanted everything to go to the settlement account to control the number of purchase lots I have. Now that ship has sailed and I have a dozen or so tiny lots, I'm wondering if I should still set my cost basis tracking to SpecID or whether I should now use Avg Cost. Is this something I can change at any time?

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mhc
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Location: NoCo

Re: Have been accidentally reinvesting dividends in taxable

Post by mhc » Mon Mar 14, 2016 9:07 am

I would keep specific id for TLH purposes. Many small lots is not a big deal, especially if they are covered shares and you use tax software.

Soon2BXProgrammer
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Joined: Mon Nov 24, 2014 11:30 pm

Re: Have been accidentally reinvesting dividends in taxable

Post by Soon2BXProgrammer » Mon Mar 14, 2016 9:11 am

Don't worry about it.

You should still use cost basis of SpecID; if you want to have greater control over taxes when selling. I have tons of little lots, they don't bother me. Excel can handle millions of rows. :happy

There are two ways I normally get rid of them:

1. Sell them in a tax loss harvest event. (Currently doing this)
2. Give them to a Charity/DAF if they are highly appreciated (Hopefully i can do this in the future)

The bigger reasons why most people don't reinvest automatically are:

1. To not accidently have a wash sale with a TLH.
2. They want to control what fund it buys back into so that they can use the distributions to help (re)balance their portfolio.

JW-Retired
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Joined: Sun Dec 16, 2007 12:25 pm

Re: Have been accidentally reinvesting dividends in taxable

Post by JW-Retired » Mon Mar 14, 2016 9:17 am

I assume you changed the reinvestment option to avoid it soon becoming hundreds of tiny lots and complicating TLH?
JW
Retired at Last

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Toons
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Location: Hills of Tennessee

Re: Have been accidentally reinvesting dividends in taxable

Post by Toons » Mon Mar 14, 2016 9:29 am

Stick with specific ID :happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee

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SpringMan
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Location: Michigan

Re: Have been accidentally reinvesting dividends in taxable

Post by SpringMan » Mon Mar 14, 2016 9:43 am

This points out one of the reasons I am not a fan of stock DRIPs (Dividend Reinvestment Programs). They were once popular because no stock brokerage fee was charged but these can result in an accounting nightmare because of all the small purchases at various prices. In the old days when brokerage fees were higher than today, they made some sense. Today they don't.
Best Wishes, SpringMan

malabargold
Posts: 497
Joined: Fri Aug 08, 2014 8:16 am

Re: Have been accidentally reinvesting dividends in taxable

Post by malabargold » Mon Mar 14, 2016 12:57 pm

We have always reinvested taxable.
No brokerage fees for reinvesting and brokerage
Keeps track of all lots and cost bases

gpburdell
Posts: 120
Joined: Sun Jun 17, 2012 9:01 pm

Re: Have been accidentally reinvesting dividends in taxable

Post by gpburdell » Mon Mar 14, 2016 10:16 pm

I originally avoided reinvesting dividends in my taxable as well. With the change back in 2011/12, that required brokerages to track cost basis I have now started reinvesting the dividends.

bi0hazard
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Joined: Mon Mar 14, 2016 10:36 pm

Re: Have been accidentally reinvesting dividends in taxable

Post by bi0hazard » Mon Mar 14, 2016 10:38 pm

Pardon my ignorance, but why would you not automatically reinvest your dividends?

Visceral
Posts: 16
Joined: Sun Nov 18, 2012 10:35 am

Re: Have been accidentally reinvesting dividends in taxable

Post by Visceral » Tue Mar 15, 2016 12:04 am

bi0hazard wrote:Pardon my ignorance, but why would you not automatically reinvest your dividends?
https://www.bogleheads.org/wiki/Reinves ... le_account

This link has pros and cons.

Goal33
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Joined: Sun Apr 12, 2015 12:30 pm

Re: Have been accidentally reinvesting dividends in taxable

Post by Goal33 » Tue Mar 15, 2016 1:48 am

I'd do SpecID, rip the bandaid off now and sell the lots due to dividends :)
A man with one watch always knows what time it is; a man with two watches is never sure.

Caduceus
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Re: Have been accidentally reinvesting dividends in taxable

Post by Caduceus » Tue Mar 15, 2016 3:09 am

I re-invest dividends for smaller positions that I do not intend to add new investment income toward. This is more cost efficient because reinvestment of dividends is commission-free. The extra bookkeeping does not bother me.

yosef
Posts: 337
Joined: Tue May 24, 2011 2:10 pm

Re: Have been accidentally reinvesting dividends in taxable

Post by yosef » Tue Mar 15, 2016 6:37 pm

Thanks all for the replies. Yes, I changed it to spec ID. This is a relatively small account that I am contributing to sporadically (my priority remains tax-advantaged). My choice of spec ID is mostly to keep my options open for potential future TLH.

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