What are some of the tax implications of investing in DRIPs?
• Even though dividends are being reinvested, they count as ordinary income for tax purposes. Therefore, remember to include reinvested dividends as part of your income. Companies will send you 1099 forms at the end of the year showing how much was paid in dividends. • It is important to keep track of the stock price each time you make purchases in a DRIP. This cost basis will come into play when you sell stock and have to determine your cost basis for tax purposes. If you can identify the shares of stock sold, your cost basis is the cost of those particular shares of stocks. However, if you sell securities at various times and cannot identify the shares that are sold, the cost basis of the securities sold is the cost of the securities acquired first — the “first-in, first out” method. • You must report as income any service charges paid on your behalf by the company, although you can deduct these charges in the year they are paid as a miscellaneous deduction if you itemize. • If you p
A Concerning DRIPs and taxes, there are a few key things to remember: Even though dividends are being reinvested, they count as ordinary income for tax purposes. Therefore, remember to include reinvested dividends as part of your income. Companies will send you 1099 forms at the end of the year showing how much was paid in dividends. It is important to keep track of the stock price each time you make purchases in a DRIP. This cost basis will come into play when you sell stock and have to determine your cost basis for tax purposes. If you can identify the shares of stock sold, your cost basis is the cost of those particular shares of stocks. However, if you sell securities at various times and cannot identify the shares that are sold, the cost basis of the securities sold is the cost of the securities acquired first the “first-in, first out” method. You must report as income any service charges paid on your behalf by the company, although you can deduct these charges in the year they ar
