Shareholders voted to cash out stock! Now what?

[roadtrippers]

I had 56 shares of GMCR stock that I bought for about 140 dollars several years ago. Last month, shareholders voted to take cash as a result of a merger. ( I never got info about this meeting, and I'm sure I don't own enough to have made a difference.) I now have over 5K sitting in my trade account, and I don't know what to do with it. Looking for advice!

Do I have to pay capital gains even though I didn't choose to cash out?
Is this considered a return of capital?
If I reinvest it, is it still a taxable event?
Our effective tax rate was 9% last year, but our AGI puts us in the 25% bracket, if that helps.

Any help is appreciated!

[skuzuker28]

I'm assuming this isn't in any tax advantaged account? (IRA, 401k, etc.)

If it is just in your regular brokerage account, my understanding is:

Yes, there is a reportable transaction.  Whether you report a gain or loss will depend on how much you received per share in the buy-out.

It is not a return of capital from a tax perspective.

It is taxable regardless of what you do with the funds.

I'm having trouble imagining a 9% effective rate while in the 25% bracket, but it would be possible with more than the usual amount of credits.  Your tax bracket is determined by your taxable income by the way, not AGI.  AGI is a determining factor for credit and deduction phase-outs though.

If you are indeed in the 25% bracket, any gain will be taxed at 15%.

[Spork]

[ Be very careful of my advice.  I'm not qualified in any way to give it.  I just have owned stocks and paid taxes. ]

Every merger/reorg I've been a part of has been different.  Sometimes it has been bizarre.  Somewhere there will be a press release that will tell you how it was done.  Often when they're complicated, they'll even give you a sample "John had 50 shares bought at $14..."

You'll also likely get a 1099 form at the end of the year that details the transaction and will just have the right info on it.  They passed a law a few years back to require the brokerage houses to keep track of your stock basis.  So far, all of mine have been accurate (with the exception of stocks I've held since before that law passed.)

[roadtrippers]

Thanks for the replies! To answer your questions--yes, it is a regular trading account with Scottrade, and the funds are just sitting there now as "Funds available for trading."

@Spork--Any idea when that law was passed? I bought this stock in 2006. I originally bought 4 shares at 35.44 a share. Since then, it has split several times, which reads as "tax exempt dividend spinoff" in my history and I did some dividend reinvesting, giving me 56 shares which were cashed out at 92 dollars each, which comes to over 5K (I got lucky; this was "play" money, and I do NOT often buy individual stocks).

@dleavitt--re: effective tax rate, I guesstimated based on AGI and what we paid in federal taxes. I just went back and looked, and it's actually even lower: AGI 107K, federal taxes 7700. We don't have any unusual credits, just a daughter in college. We do try to max out our 457s, but that's it.

[Spork]

@Spork--Any idea when that law was passed? I bought this stock in 2006. I originally bought 4 shares at 35.44 a share. Since then, it has split several times, which reads as "tax exempt dividend spinoff" in my history and I did some dividend reinvesting, giving me 56 shares which were cashed out at 92 dollars each, which comes to over 5K (I got lucky; this was "play" money, and I do NOT often buy individual stocks).

It looks like 2008... So you'll have to figure out your cost basis manually. Normally there is some letter to investors or press release our something that will explain tax consequences.

[Spork]

http://investor.keuriggreenmountain.com

If I am reading this correctly (that is a big if... Please verify!) I would say this was a plain straight purchase at $92 a share.

Your cost basis is usually just the about you sold it for minus the amount you bought it for. You can include costs of trades in there as well. This assumes there were no other of events since 2006 that changed your cost basis.

I will gleefully admit I am wrong if someone with more tax knowledge corrects me.

[Heckler]

This is the company that claims Sustainabilty, yet had a six year timeline to figure out how to recycle the millions of stupid little plastic cups they produce?   

http://www.keuriggreenmountain.com/en/Sustainability/Overview.aspx



http://www.cbc.ca/news/canada/british-columbia/keurig-k-cups-now-recyclable-in-metro-vancouver-if-you-do-the-work-1.3399982

How to recycle them properly:
1.  Dump the coffe grinds into compost
2.  Remove the top and throw it in the garbage
3.  Put the plastic in the recycling box. 

Convenient, eh?   Or just toss the whole thing in the garbage like everyone else who's happy to pay for this ridiculous convenience.   

[Heckler]

Be glad you sold and buy a Bodum and some index funds. 

[roadtrippers]

This is the company that claims Sustainabilty, yet had a six year timeline to figure out how to recycle the millions of stupid little plastic cups they produce?   
http://www.keuriggreenmountain.com/en/Sustainability/Overview.aspx
http://www.cbc.ca/news/canada/british-columbia/keurig-k-cups-now-recyclable-in-metro-vancouver-if-you-do-the-work-1.3399982

How to recycle them properly:
1.  Dump the coffe grinds into compost
2.  Remove the top and throw it in the garbage
3.  Put the plastic in the recycling box. 

Convenient, eh?   Or just toss the whole thing in the garbage like everyone else who's happy to pay for this ridiculous convenience.

Ironically the reason I invested in the first place (before they merged with Keurig) was that Green Mountain had developed a recyclable coffee cup made out of corn or something. I guess Keurig didn't get the memo. And I don't own a Keurig:)

[Reynold]

@Spork--Any idea when that law was passed? I bought this stock in 2006. I originally bought 4 shares at 35.44 a share. Since then, it has split several times, which reads as "tax exempt dividend spinoff" in my history and I did some dividend reinvesting, giving me 56 shares which were cashed out at 92 dollars each, which comes to over 5K (I got lucky; this was "play" money, and I do NOT often buy individual stocks).

It looks like 2008... So you'll have to figure out your cost basis manually. Normally there is some letter to investors or press release our something that will explain tax consequences.

Though those letters aren't going to provide you enough information to figure out your cost basis, if you reinvested dividends.  That is one reason I don't reinvest dividends in taxable accounts, it makes it a PITA to figure out cost basis, because you have to keep track of every little purchase.  I just accumulate the dividends and buy something else. 

Roadtrippers, hopefully you have records of how much TOTAL you paid for the stock over the years.  Initial, plus amounts reinvested (yes, you paid for those shares, even if you didn't see the money directly).  That is your cost basis, which gets entered in one place on the IRS Schedule D form.  You now know how much they sold for, your ~5k now sitting in your account, that gets entered in another place.  The difference should be your taxable income. Hopefully you kept your records going back to 2006, many people think you only have to keep records going back 7 years, but anything documenting cost basis you need to keep as long as you own something, so you can figure out your profit or loss when you sell it.  Otherwise the IRS is happy to let you assume you got it for free, and it is ALL profit. . . 

What complicates this somewhat is if there were any reinvested dividends from the last year, if so, those shares, cost basis and sale price have to be separated out, because they were short term instead of long term holdings, and will have a different tax rate.  You should be able to do that on a % basis, for example if of the 56 shares that were sold, there was 1 share bought in the last year, 1.8% of the 5k, or $89.30, of the proceeds gets allocated to that. The cost basis for that share depends on what you paid for that share in the last year. 

[Spork]

The upside of this is that reinvested dividends since 2008 will just be managed by the broker.  The initial purchase and the 2006-2008 are going to require you to fish through (or rebuild) your record keeping.

[markbike528CBX]

On E-Trade, you can expand the entry by the ticker symbol and it gives date, price shares, etc even for pre-etrade (Harris) entries.

Not official, but would give you an idea.