Drips and Taxes
Some final thoughts

By George Runkle (TMFRunkle@aol.com)

Atlanta, GA (March 8, 1999) -- Last Monday I discussed using TurboTax and Quicken to calculate taxes for your Drip accounts. Since that column was written, a few other issues came up. I received an e-mail from Gene Goldenberg, Vice President and Publisher of Block Financial Corp. His company puts out Kiplinger's Tax Cut, and he suggested that their program is easier and more reliable than Turbo Tax. His staff sent me an evaluation copy to look at.

Because of time constraints, I can't do a true evaluation of Kiplinger's Tax Cut vs. TurboTax. To be fair, each program would have to be tested extensively, and there are a number of fine publications that evaluate these types of programs. I suggest that you check out the Ziff-Davis website, www.zdnet.com, if you're interested. If you enter "TurboTax" or "Tax Cut" in the search engine, a number of good articles come up about them. I did try importing my capital gains information into Tax Cut, and also last year's Turbo Tax file. It took a few extra steps, but it was quite simple, and explained in a way that even I could understand it. So, either program appears to be able to the job quite well.

Now, the next question that came up in a chat room since last week was "Why do your own taxes?" In Fooldom, we encourage people to make their own investment decisions. However, doing taxes is not like deciding whether to invest in Coca-Cola (NYSE: KO) or Johnson & Johnson (NYSE: JNJ). One particularly bad year, my wife and I moved, ran a home business, owned a rental property, and sold stock. The accountant found our taxes "intellectually challenging." I don't think doing my own taxes that year would have been advisable. (I might be writing this from prison if I had.)

The tax work for selling stocks is not as complex as the depreciation schedules needed for a business or rental property. TMF Elwood did a Foolish job in explaining this on Friday. In summary, you mainly need to determine the cost basis of the shares that you sell and calculate the taxes based on your gains or losses. However, it isn't completely simple because you have short and long term gains, and the tax rate varies with your income level. While tax software figures this all out for you, the IRS holds you responsible. Without an understanding of what is going on, you could inadvertently make some errors.

Fortunately, we have our own tax area, which is run by our very own accountant, Roy Lewis (TMF Taxes). Roy explains a number of complex tax topics in a simple manner. I browse his area through the year and have learned a lot from it. In addition to The Motley Fool, our very own government has a good site too, www.irs.gov, which allows you to download a lot of publications that explain the ins and outs of the tax codes.

For me, the greatest effort in doing my taxes is gathering the information. Putting it in the tax software is relatively easy. However, I do spend a lot of time studying Roy's area on the Fool and the different IRS publications. If the capital gains calculations make you uncomfortable, or if your taxes are more complex because of business or rental property income, you may wish to go to an accountant. Even if you do see a professional, it is very important to keep good records, and gather the data in an easy to read format. You don't want to spend $70 an hour for your accountant to sift through a pile of DRIP statements to figure your gains and losses. Even if you don't understand the tax codes, making your gains and losses easy to read is not a lot of work with Quicken, Microsoft Money, or the Fool's very own Port Tracker, which can save you money and help get your taxes filed earlier.

The moral: always keep good records.

As the filing deadline approaches, but sure to check out the Fool's special Tax Haven area for all of your tax needs.

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