How to Report DRIP Stock Sales
Proper reporting of DRIP (Dividend Re-Investment Program) stock sales requires accurate record keeping and use of both dividend and capital gains reporting. Use the spreadsheet described below to maintain accurate records. It is important to remember that while dividends must be reported annually stock sales need only be reported when they occur.
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Instructions
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List the initial purchase and the additional shares you have received in a column on a spreadsheet. Note from the confirmation of each drip purchase the price of shares purchased in another column. In a third column multiply the price of the stock by the number of shares received.
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2
Separate the list by years. Total the purchase of stock for any given year. This total amount of dividends available for reinvestment (column three) should be totaled as short term capital gains and needs to be reported each year as ordinary income.
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3
Total the sum of all stock purchases except those made in the last year. Multiply the total number of shares held by the current stock price. Subtract the cost basis from the current stock price. Your cost basis refers to the sum of step three. If the number is positive the net difference is subject to capital gains tax. If the number is negative you have a long term capital loss.
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Know that while you report the dividend income each year there is no tax on the appreciated stock until you sell it. It is very important that DRIP record-keeping be started once the investor is accepted into the program.
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Report dividend income on Form 1099-DIV. For specific help see Resources (How to Report Dividends). File this form along with your IRS Form 1040. Report capital gains or losses on Form 1040 Schedule D.
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Tips & Warnings
Start your record keeping from the beginning of the program. Keep all dividend reinvestment statements in case of an IRS audit.
References
Resources
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