Thursday, March 1, 2012


Just finished filing my taxes for 2011 and am happy to be getting a small refund.  I like to use tax time as a way to judge how effectively I've managed my money for the previous year and try to figure out ways to come out better, the next time around.  This year I noticed a couple of things I could have done better. 

First and foremost, I should have contributed about twice as much to my IRA account.  Doing so would have eliminated my tax liability and I would have gotten back everything I paid in Federal and State tax for the past year.  This might sound like a no brainer but it's something I overlooked on last years' returns.

Another thing I learned is how much more paperwork, or at least data entry, is involved when you sell shares in which you've recently re invested dividends.  For capital gains and cost basis purposes, each dividend is treated as a separate stock purchase date and has to be reported as such.  So for the sale of one lot of stock, if that lot includes shares purchased through re invested dividends, you may have several taxable events.  It would seem much simpler to take dividend payments in cash until you've accumulated substantial amounts and then re invest the money.  Doing so will make tax preparation much simpler if you decide to sell later on.  However, money wise, it's still better to reinvest the dividends as they're paid.

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