If I pay taxes on rein invested dividends each year, how do I decrease cost basis of current dividend?

[trimbolijt]

I'm not selling my mutual, just let dividends rein invest.

[ToddL · Accepted solution]

Actually, if you pay taxes on the dividends you receive each year, your cost basis in the mutual fund goes up each year by the amount of the annual dividend. 

When you reinvest dividends in a non-retirement mutual fund, you are buying additional shares of that fund. The "cost basis" of the additional shares is the taxable dividend you reinvested.