Taxes on stocks and dividend reinvestment plans
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Financial Planning - Financial planning in general. (Moderated) 

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Subject Author Date
Taxes on stocks and dividend reinvestment plans AsymF 04-16-2007
Posted by AsymF on April 16, 2007, 12:29 pm
I am fairly green when it comes to an understanding of taxes with
stock ownership and I am wondering if someone here can answer these
simple questions for me.

If I own a stock and it doubles in value by the end of the tax year
but I don't sell the stock, do I still have to pay taxes on the value
gained on the stock that very year or do I only have to pay taxes on
it the year that I actually sell the stock if I make a profit off the
sell?

If I have a dividend reinvestment plan setup with my brokerage firm do
I need to pay taxes on those dividend disbursements at the end of that
year or only after I sell the stocks? At some other point?

Thanks for your help!


Posted by Andrew Koenig on April 16, 2007, 12:33 pm

> If I own a stock and it doubles in value by the end of the tax year
> but I don't sell the stock, do I still have to pay taxes on the value
> gained on the stock that very year or do I only have to pay taxes on
> it the year that I actually sell the stock if I make a profit off the
> sell?

You pay taxes on the stock you sell in the year you sell it. The amount on
which you are taxed is the difference between the sales price and the "cost
basis" for that stock, which is the amount you paid for it.

> If I have a dividend reinvestment plan setup with my brokerage firm do
> I need to pay taxes on those dividend disbursements at the end of that
> year or only after I sell the stocks? At some other point?

Each dividend is taxable when you receive it. If you use that dividend to
buy more stock, it's just as if you used cash to buy the same amount of
stock.


Posted by PeterL on April 16, 2007, 1:46 pm
> I am fairly green when it comes to an understanding of taxes with
> stock ownership and I am wondering if someone here can answer these
> simple questions for me.
>
> If I own a stock and it doubles in value by the end of the tax year
> but I don't sell the stock, do I still have to pay taxes on the value
> gained on the stock that very year or do I only have to pay taxes on
> it the year that I actually sell the stock if I make a profit off the
> sell?

Only when you sell.


>
> If I have a dividend reinvestment plan setup with my brokerage firm do
> I need to pay taxes on those dividend disbursements at the end of that
> year or only after I sell the stocks? At some other point?
>


Tax on dividends are paid every year.


> Thanks for your help!


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