Selling DRIPs or Dividend Reinvestment Plans is one way to help you earn some money. However, in most cases, selling some of them can help you free yourself from unworthy and slow investments. If you consider selling your DRIP stocks in one way or another, you must know the rules during sales. This way, you can get the best profit out of your investments. Check out these tips to help you throughout the process:
- Order for a sale of your DRIP stocks. What is often good about selling this kind of investment is you do not pay any transaction fee. Mostly, the reason is that companies usually buy and sell stocks in bulk. Hence, prior to selling your DRIP stocks, companies require you to request for the sale of the investment. It usually takes around five business days before a certain company can issue a request sale for you. You can order this request either in writing or telephone communication. You can double check the instructions for ordering the request sale on your monthly statement.
- Calculate the cost basis of your DRIP stocks. Selling DRIP stocks makes you responsible for capital gain tax. Hence, it is necessary that you calculate the cost basis for the capital gain to help you calculate the tax liability later on. However, this evaluation is challenging especially if your shares have been purchased in various transactions for a long time. In most cases, the calculation of the stocks’ cost basis simply involves summing up the reinvested dividends and the stock’s initial purchase price. Once you have the sum, divide it by the total number of stocks that you have during the time of your sale.
- Understand your liability when speaking of capital gains tax. The calculation of the stocks’ cost basis will lead you into answering your liability for capital gains. You can calculate capital gains tax by multiplying the cost basis and the number of sold shares. Then, subtract this product from the proceeds of your sale. In case that the total shares you sold are lesser than the total number of shares you have acquired for the current year, your tax liability is calculated by multiplying the capital gain and the long term capital gain rate. If your situation is the other way around, you compute your tax liability by multiplying the normal rate and the capital gain.
- Leave your DRIP stocks unsold. This is only true if you have your stocks managed by a regular discount broker. You can simply leave the stocks without selling the shares. If you do this, your future dividends will be deposited to your account in cash. However, take note that when you do this, you list down the total shares you own at the start of the investment so you can use the figure to help you in calculating the cost basis, capital gains, and tax liabilities in the future.
It is not at all a challenge to sell DRIP stocks. However, to ensure your success in this decision, you must know the most appropriate techniques so you can get the most out of your sales. If you will simply understand the nature of DRIP stocks, it is safe to say that you can already be certain of your success in your need to sell some of your stocks.