Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q: How do you figure out the value of your stock when you have a dividend reinvestment plan in order to see how much the stock is worth? Do you just add all of the dividends you received over the years and add that to the cost, and that would be your total cost of the stock so that you can figure out the capital gain or capital loss?
A: Yes, you add all of the reinvested dividends to the original cost of the stock purchased to determine the total cost. Capital gain or loss on any shares acquired through the dividend reinvestment plan one year or less from the date you sell the stock is considered a short-term capital gain or loss, while the remaining gain or loss would be considered long-term.
Q: We paid $15 a share for AT&T.; Now we want to give it to our children. Assuming they sell it after a year or so, would I have to pay the difference between what they sell it for and what we paid for it or would they have to pay the difference in taxes? I appreciate they would have to pay taxes on their dividends.
A: Your children will be responsible for any income tax that might accrue when they sell the stock. The tax they will pay will be based on the difference in the amount you paid for the stock (your basis) and what they sell it for. Keep in mind, however, that you may have to pay gift tax on the fair market value of the gift if it is over $10,000 per child.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
Members of the Maryland Association of Certified Public Accountants will answer tax questions from readers until April 15 and also offer a Tax Tip of the Week.
To submit a question, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford County 836-5028, and in Carroll 848-0338. Using a touch-tone phone, enter 6225 after the greeting. Push 1 to submit a tax question; state the question in full. Push 2 to hear the tax tip. Selected questions will be answered in the Business section.