How to Report Taxable Dividend Reinvestment Plans

If you own stock in a corporation which has a dividend reinvestment plan, you can elect to have the dividends applied toward the purchase of more stock instead of receiving the cash. When the dividends are used to purchase stock at its fair market value (FMV) price, the dividends must still be reported in your taxable income. If stock is purchased at less than fair market value, the difference is also considered taxable income. Read on to learn how to report taxable dividend reinvestment plans.

Difficulty: Moderately Easy

Instructions

1. Receive a Form 1099 after the end of the year from all companies that paid you dividend income during the previous year. Check that the amounts correspond to the reinvestment plan statements for the year.

2. Include in dividend income any service charge which is subtracted from your dividends before the amounts are used to buy more stock in the company. You may be able to deduct the service charges as investment expenses in miscellaneous deductions on your Form 1040 if your total expenses exceed limitations.

3. Verify that your dividends were being invested at FMV prices. Reinvestment at a price less than FMV results in additional dividend income. The additional dividend income is determined by using the actual FMV on the dividend payment date.

4. Report all dividend income on Schedule B of Form 1040 or Schedule 1 of Form 1040A.

5. Use Schedule D of Form 1040 to report the sale of stock from your account in the dividend reinvestment plan during the year. You should get a statement showing the dates sold, the number of shares sold, the total amounts received and the cost or basis of those shares.

Resources

• Schedule B of Form 1040
• Schedule D of Form 1040