Taxable Income

Taxable Income

Even though dividends are reinvested and not received in cash, they are still considered taxable income in the year they are paid. Investors must 주식 pay taxes on reinvested dividends as if they had received them in cash.

  • Example: An investor enrolled in a DRIP receives $1,000 in dividends, which are reinvested to purchase additional shares. The $1,000 is still subject to dividend taxes, and the investor must report it as taxable income.


DRIPs can complicate record-keeping for tax purposes. Investors need to track the cost basis of the additional shares purchased with reinvested dividends to accurately calculate capital gains or losses when the shares are eventually sold.

  • Example: Over several years, an investor reinvests dividends to purchase additional shares at varying prices. Accurate records of each reinvestment transaction are necessary to determine the cost basis and calculate capital gains or losses upon sale.

Tax-deferred accounts and Dividend Stocks

Investing in dividend stocks through tax-deferred accounts such as IRAs or 401(k)s can provide tax advantages.