The Baby Steps Explained, And Why They Work!

These are the steps that introduced me and my husband to what financial independence is and for that I am eternally grateful. But a lot of important considerations get looked over if you just find a list of the steps…

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Source: modernfrugality.com

Understanding Cash in Lieu of Fractional Shares

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It’s not uncommon for publicly-traded companies to restructure based on changing market conditions or share prices. When companies merge, split their stock, or acquire competitors, it can raise the question of how to consolidate or restructure the company’s stock.

If such a corporate action generates fractional shares, the company’s leadership has a few options for how to proceed: They could distribute the fractional shares, round up to the nearest whole share, or pay cash in lieu of fractional shares.

What is Cash In Lieu?

stock price, or both.

There are several company events that can lead to investors receiving cash in lieu of fractional shares.

Stock Split

A stock split occurs when a company’s board of directors determines that their company’s strongly performing stock price may be too high for new investors. To make the stock price look more attractive to more investors and gain more liquidity and marketability, a stock split is executed to artificially lower the stock’s price by issuing more shares at a fixed ratio while maintaining the company’s unchanged value.

Depending on the predetermined ratio, a stock split could cause fractional shares to be generated. For example, a three-for-two stock split of a stock worth $111 would create three shares for every two shares each investor holds. Thus, a stock split would cause any investor with an odd number of shares to receive a fractional share.

However, if the company’s board isn’t keen to hold or deal with fractional shares, they will distribute investors’ whole shares and liquidate the uneven remainders, thus paying investors cash in lieu of fractional shares. The ratio or cash rate as set by the company performing the stock split can be located on the company’s corresponding SEC 8-K document.

reverse stock split because a stock’s prices are too low and they want to artificially raise them. If stock prices get too low, investors may become fearful to buy and the stock risks being delisted from exchanges.

When a stock undergoes a reverse stock split, each share is converted into a fraction of a share but higher-priced shares are issued to investors according to the reverse split ratio . For example, a stock valued at $3.50 may undergo a reverse one-for-10 stock split. Every 10 shares is converted into one new share valued at $35.00. Investors who own 33 shares or any number indivisible by 10 would receive fractional shares unless the company decides to issue cash in lieu of fractional shares.

Companies may notify their shareholders of an impending reverse stock split on Forms 8-K, 10-Q, or 10-K as well as any settlement details if necessary.

Merger or Acquisition

Company mergers and acquisitions (M&As) can also create fractional shares. When companies combine or are absorbed, they combine new common stock using a predetermined ratio, which often results in fractional shares for investors in all involved companies.

In these cases, it’s rare for the ratio of new shares received to be a whole number. Companies may opt to return whole shares to investors, sell fractional shares, and disburse cash in lieu to investors.

Spinoff

If an investor owns shares of a company that spins off part of the business as a new entity with a separately-traded stock, shareholders of the original company may receive a fixed amount of shares of the new company for every share of the existing company held.

How Is Cash in Lieu of Fractional Shares Taxed?

Just like many other forms of investment profits, cash in lieu of fractional shares is taxable , even though it was acquired without the investor’s endorsement or action. The stock’s company may send investors a check followed by an IRS Form 1099-B at year-end with a “cash in lieu” or “CIL” notation.

Some investors may simply report the payment on the IRS Form 1040’s Schedule D as sales proceeds with zero cost and pay capital gains tax on the entire cash settlement. However, the more accurate and tax-advantageous method would apply the adjusted cost basis to the fractional shares and pay capital gains tax only on the net gain.

Looking to Trade Fractional Shares?
SoFi Invest Can Help with That.

How to Report Cash in Lieu of Fractional Shares

Calculating the cost basis for cash in lieu of fractional shares is a little tricky due to the change of share price and quantity. The new stock issued is not taxable nor does the cost basis change, but the per-share basis does.
Consider the following example:

•  An investor owns 15 shares of Company X worth $10.00 per share ($150 value).
•  Investor’s 15 shares have a $7.00 per share cost basis ($105 total cost basis).
•  Company X declares a 1.5 stock split.

The investor is entitled to 22.5 shares valued at $6.67 each but the company states they will only issue whole shares. Therefore, the investor receives 22 shares plus a $2.73 cash in lieu payment for the half share.

The investor’s total cost basis remains the same, less the cash in lieu of the fractional shares. However, the adjusted cost basis now factors in 22 shares instead of 15, equaling a $4.66 per share cost basis and a $2.33 fractional share cost basis. Finally, the taxable “net gain” for the cash payment received in lieu of fractional shares equates to $2.725 – $2.33 = $0.39.

The Takeaway

It’s not always possible to anticipate a company being restructured and how it will affect shareholders’ stock. In the event the company doesn’t wish to deal with fractional shares, it’s important for shareholders to understand the alternatives such as cash in lieu of fractional shares, and how it affects them. While cash in lieu can be burdensome, investors can be made whole and can then proceed on their own accord.

There are many reasons investors consider fractional shares worth buying to add to their investment portfolio. For individuals looking to invest in fractional shares with the help of a simple account setup and no fees, SoFi Invest® can help.

Find out how SoFi Invest can help you reach your financial goals.


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . The umbrella term “SoFi Invest” refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Digital Assets—The Digital Assets platform is owned by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, http://www.sofi.com/legal.

External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.
Stock Bits
Stock Bits is a brand name of the fractional trading program offered by SoFi Securities LLC. When making a fractional trade, you are granting SoFi Securities discretion to determine the time and price of the trade. Fractional trades will be executed in our next trading window, which may be several hours or days after placing an order. The execution price may be higher or lower than it was at the time the order was placed.

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Spring + Summer Recipes to Fill Your Instagram Feed

SUMMER-RECIPES-TOO-PRETTY-TO-EAT

It’s officially May and that means summer is just around the corner!!  While a lot of things have changed this year, my love of summer remains!  Bring on the warm weather…am I right?  Along with sundresses and sunglasses comes a whole bunch of fresh fruits and vegetables I can’t wait to get my hands on.  The delicious recipes below from some of my favorite bloggers will all be in heavy rotation for the next month.  If you need a refreshing cocktail to go along with these delicious bites, bookmark these summer cocktails for your next read.

SUMMER PEACH BALSAMIC CAPRESE SALAD

Make-Ahead Recipes | Meal Prep Guide | One-Pot Tomato, Chickpea, and Orzo Pasta
via Whole and Heavenly Oven

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STRIPED JUICE POPSICLES

Make-Ahead Recipes | Meal Prep Guide | Slow Cooker Butter Bean Minestrone
via The View From Great Island

GET THE RECIPE

TOMATO, PEACH, & BURRATA SALAD

Make-Ahead Recipes | Meal Prep Guide | Cucumber Quinoa Salad
via Two Peas & Their Pod

GET THE RECIPE

STRAWBERRY GOAT CHEESE CROSTINI

Make-Ahead Recipes | Meal Prep Guide | Winter Kale Salad
via Foodess

GET THE RECIPE

BAKED RATATOUILLE TIAN

Make-Ahead Recipes | Meal Prep Guide | Pizza Pasta Salad
via KELLIES FOOD TO GLOW

GET THE RECIPE

SUMMER FRUIT BREAKFAST BAKE

Make-Ahead Recipes | Meal Prep Guide | Rustic Polenta Casserole
via Eazy Peazy Mealz

GET THE RECIPE

BLUEBERRY BREAD PUDDING

Make-Ahead Recipes | Meal Prep Guide | Enchilada Stuffed Sweet Potatoes
via Spicy Southern Kitchen

GET THE RECIPE

Read Spring + Summer Recipes to Fill Your Instagram Feed on Apartminty.

Source: blog.apartminty.com