Filing Income Taxes On Dividend Reinvestment Stocks

A dividend income tax is a tax on dividends earned by an investor on stocks that pay dividends. This tax can be from 0 percent to 15 percent on qualified dividends and 10 to 35 percent on ordinary dividends. The amount of tax that you pay depends on your income bracket.

Stock Dividend Reinvestment Programs

A stock dividend reinvestment program (DRIP) allows for investors with low amounts to invest in a company’s stock. The amounts invested are used to purchase dividends, which are reinvested to purchase fractional shares of the company’s stock. Over time the investor’s interest in the company grows as the dividend grows and is reinvested to purchase additional shares.

File Schedule B

Schedule B to the Form 1040 is used to file information concerning all dividend reinvestments that have been made by an investor. This can also be accomplished through the filing of Schedule 1 to the Form 1040A. The dividends will receive different treatment for tax purposes depending on whether the stock was purchased at fair market value (FMV) or not. Information concerning the stock’s purchase price and FMV will be contained in the Form 1099-DIV, which the investor’s corporation sends to the investor.

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