Some corporations allow investors to purchase more shares of stock with money received from dividend payments. Dividends are reported as income regardless of whether they’re reinvested. Tax reporting of dividends doesn’t include any information about reinvestment. The only time you report shares bought with reinvested dividends is when you sell them. You have a capital gain or loss comprised of the difference between sales proceeds and cost basis. The cost basis for shares obtained with dividend reinvestment is the amount of the dividend. Consequently, the tax report of shares acquired by reinvesting dividends requires a record of the dividend payment dates and amounts.
1. Place a description for each group of shares acquired with reinvested dividends in Column (a) of Schedule D. Start on Line 1 for any shares sold one year or less after purchasing them with reinvested dividends. Begin with Line 8 for shares sold more than one year after the dividend reinvestment.
2. Enter the date that the shares were purchased with reinvested dividends in Column (b).
3. Input the sale date of the shares acquired with reinvested dividends in Column (c).
4. Record in Column (d) the sales proceeds for the shares acquired with reinvested dividends. This is the number of shares times the price per share of the sale.
5. Place in Column (e) the dividend amount that was reinvested as basis in the shares.
6. Subtract Column (e) from Column (d) and report the result as a gain or loss in Column (f). Show a loss in parentheses.
- Include in cost basis any commissions paid when buying the shares with reinvested dividends.
Items you will need
- Internal Revenue Service Schedule D