Finding the cost basis of a long-held stock or mutual fund is like trying to recall all the phone conversations you've had with an old friend for the past 25 years--including the date and cost of each call.
If you've tried this on your own, you know what I mean. When your brokerage or investment company doesn't provide cost-basis info, you've got to figure it yourself. And the task of identifying how much you've earned--particularly when you've used a dividend-reinvestment plan (DRIP)--is daunting. The hassle is compounded if you haven't kept all your records. And it's nearly impossible if that holding has changed names a few times (think AT&T).
My editor told me he spent a couple of hours one Sunday attempting to determine the cost basis from the sale of Vodafone shares that netted him all of $16.50. He finally arrived at a cost basis of roughly $5.60. "A saner person might simply have listed the cost basis as $0 and paid a little extra in tax," he noted.
Since then, I found an interesting tool to avoid the cost-basis wild goose chase. It's called BasisPro, and it's included in TurboTax's Premier Investments, which you can buy in stores or download for $74.99, plus tax. If you have a lot of cost-basis problems to solve this weekend, this tool may save you money over a preparer's fees. (Even if you use a preparer, you can save on the preparer's overall fee by finding the basis yourself.)
Here's how it works: When you get to the section of TurboTax involving sales of investments, click on the tab that says "Assist Me." You'll eventually reach a page called "Enter What You Paid for This Stock" (as in "Enter Ye of Little Hope"). Before you go screaming toward the fire exit, click the panic button, aka the BasisPro tab. A new window will open up and walk you through some of the same questions, including the date of purchase. If you can't remember, use your best guesstimate.
Now click "Continue," and BasisPro will identify all the company names with which your stock or mutual fund was associated since you got it. In my editor's case, the Vodafone stock is a great-great granddaughter of AT&T. I clicked on the "AT&T" box, and BasisPro instantly calculated a purchase price for the date in question, as well as the number of shares purchased. Another click gave me the cost bases for both long- and short-term capital gains treatment. One more click gave me a dividend-reinvestment schedule.
The whole process took less than 10 minutes. I tested it with a hypothetical mutual-fund sale, and it also worked like a charm.
For comparison, I tried two online services that I thought could help me with cost basis. Both left me quite confused. One was BigCharts, which couldn't identify AT&T on the Vodafone family tree. It was free, but not useful to me. The other was Xcitax, which is really designed for professionals. It costs a minimum of $50 to use. I couldn't follow its instructions, and what it did provide was too complicated for laymen.
Keep in mind that lots of companies have made it easier for shareholders to determine cost basis of their stock, with free interactive services on their Web sites. Typically, you'll find them in the Investor Relations section.
But if you can't get the information from the company or from your brokerage, BasisPro is a good resource. In my admittedly limited test, it performed as promised.