Dividend reinvestment?

Question

If I reinvest my dividends in the companies that offer them do I still pay tax on the div? or only if I take the div in cash?

Answer 1

If it is in a taxable account the dividends are always taxable the year paid, regardless of what you do with them.  But if reinvested, you also need to keep track of the cost basis of fractional shares that your dividends buy, so you can account for that when you sell those fractional shares.

If you are in the USA, "qualified" dividends are taxed at long term rates if you owned the stock for at least 61 days around the ex-div date.  Of course if that is done within IRA no tax is due at that time (or ever in Roth IRA) unless you take a distribution too soon..

Answer 2

Yes, you pay taxes on dividends whether you take them in cash or reinvest them.  Unless its in a tax-sheltered account like an IRA.

Answer 3

Your suppose to pay tax on it. What you buy has nothing to do with the income.

Answer 4

Yep you still claim the dividend on your taxes.