How to Declare Stock Splits on Income Tax

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A company has a certain number of shares outstanding at any given time. These shares are priced individually and represent a fractional ownership of the company. In a stock split, the company increases the number of shares. This lowers the overall price per share and the percentage of ownership per share. Holders of stock on the date of record receive additional shares of stock required such that the percentage of ownership does not change. Here's a guide on how to declare stock splits on your income tax forms.

Keep your records. A stock split is a non-reportable event that does not increase or decrease your taxes. However, a stock split does change the calculations used when you sell your stock.

Calculate your new basis. A stock split does not generate any tax, so your total basis (initial cost of the transaction) will remain the same. However, your per share basis will change. Your new per share basis will be adjusted by the same ratio as the stock split. For a 2 for 1 stock split, your per share basis will be half of the original per share basis. For a 3 for 1 stock split, your per share basis will be one-third of your original per share basis.

Use your basis to calculate your capital gains tax once you sell your stock. Again, no taxes are generated by the split itself. Until you sell your shares there is nothing to do on your taxes. When you do sell your stock, calculate your taxable gain (if any) by using the share price you receive when you sell your stock and the new basis that has been adjusted for the stock split.

Tips & Warnings

  • Calculating your capital gains generally involves subtracting your initial costs (including transaction costs) from your final proceeds. A stock split does not change what this value will be, only how it is calculated.
  • This article is for informational purposes only and does not provide specific tax advice. Consult a professional for tax advice.

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