Broken Records

Q. I’m selling some stock and I don’t have a record of what I paid for it some 20 years ago. How do I pay tax on this? -- W.J., via e-mail

A. You must prove the cost of your shares when you sell them. If you cannot, the IRS may not allow you a “cost basis” with which to reduce your sale price and compute your gain on the shares. Your entire sales price may end up subject to capital gains taxes. (Gulp!)

The broker’s records are likely long gone by now. But if you purchased shares directly from a company, it may have a record of the transaction. If not, you might try to reconstruct a record by finding the canceled check and the stock’s price when you bought it, to determine how many shares you originally bought. Document your process, in case Uncle Sammy wants to have a discussion (read: audit) with you about it. If your arguments and analysis seem reasonable, you may be fine.

Ideally, though, always hang on to your purchase records for stock, property and other assets. Learn more at our tax area at https://www.fool.com/school/taxes.

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Q. What determines the amount a company pays in dividends?

-N.M.H., Hemet, Calif.

A. Companies set the amounts of their dividends and typically increase the amounts every now and then. Not every company pays a dividend, though. Some need to plow all their extra money into building the business.

Dividends aren’t always the best way for companies to reward shareholders, though, because they’re taxed twice. The company pays taxes on its earnings and then issues dividends with what’s left. But those payments count as income to shareholders who are then taxed on it.