Jacqueline earned $150 in cash dividends from a stock investment, reported to he
ID: 2550478 • Letter: J
Question
Jacqueline earned $150 in cash dividends from a stock investment, reported to her on Form 1099-DIV. She had previously elected to have these dividends reinvested. Choose the response that correctly completes the following sentence. The reinvested dividends are A. Nontaxable income until the stock is sold, B. Taxable on her current year return, but her basis in the stock does not change, C. Taxable on her current year return, and her basis in the new shares purchased is the cash value of the dividends, D. Not taxable on her current year return, but the new shares purchased increase the basis in the stock
Explanation / Answer
C) The reinvested dividends are taxable on her current year return, and her basis in the new shares purchased is the cash value of the dividends.Investors do have to report dividends as taxable income even if they reinvest them to buy more shares. Companies and brokerage companies will report such dividends on 1099-DIV forms the same way regardless of whether you reinvest in new shares, and the IRS will expect you to include them on your annual tax return.
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