Reinvested Dividends are Reported as Dividend Income
When I make a Category Summary Report and view it with the "Details of all Categories" option selected. Reinvest Dividends are included with the "Dividend Income" category. Reinvested Dividends should not be included with "Dividends" income as it is Unrealized Income
When I go to edit the report to exclude the "Reinvest Dividend" category from the report there is no "Reinvest Dividend" category option to uncheck.
When Reinvest Dividend is chosen as the TYPE of transaction in the investment account register is doesn't effect the cash balance, the problem only shows up when you generate a Category Summary Report.
I am sure anybody who has an Investment account that they track both Dividends & Reinvested Dividends in will have the same problem if they generate a Category Summary Report.
Comments
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I believe that whether dividends are paid as cash or reinvested in the security, they are still reported to the IRS as income in both cases. Therefore, I think it's correct that reinvested dividends are included in Dividend Income.
Quicken Mac Subscription; Quicken Mac user since the early 90s0 -
I'm sorry I forgot to mention in my post that I'm from Canada. Reinvested Dividends are not reported to the CRA until the investment is actually sold. If the Reinvest Dividend is reported to the CRA as income and also reported as income when the investment is sold wouldn't that be double taxed?
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The dividend reinvested becomes a new lot of shares with the basis equal to the dividend dollars. Only if the price of the stock increases from the price used for the reinvestment and you then sell the shares, you're taxed on the difference between the price received and the original price paid, just like any other purchase of stock. There's no "double taxation" going on here.
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A reinvested dividend is no different than if you had received a cash dividend and then turned around and immediately purchase more shares of the fund yourself, manually. It's just a convenience.
Say you get a (reinvested) dividend of $100. That $100 is taxed as ordinary (dividend) income. Then it is reinvested in the fund which is currently priced at $20/share. You therefore receive 5 new shares of the fund. The cost basis of those 5 new shares is $100 ($20/share). Now let's say you sell the shares at a later date when the price has gone up to $25/share. You have a gain on the sale of $5/share, or $25 total, which is taxed as capital gains (long or short term, depending on when you sell).
On the other hand, let's say the share price when you sell has gone down to $18/share. You now would have a loss of $2/share for those 5 shares, or $10 total loss. This would be reported as a capital loss on your tax return.
If when you sold those 5 shares the price was the same as when the dividend was reinvested ($20/share), then the sale of the fund would be a wash.
In the above example, I'm assuming that the shares sold are done LIFO (last in, first out) so that the cost basis of the shares sold is that of the last purchased lot of 5 shares. Other lot allocation methods (e.g., average cost basis) could result in different tax scenarios.
Quicken Mac Subscription; Quicken Mac user since the early 90s0 -
Thanks to RickO and to Tom Young.
Your explanations cleared this up for me.
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I am in Canada as weel and I think that re-invested dividends are included in my yearly T5 for tax purposes, and since it does buy shares, the value of the shares is at the day the dividends are reinvested and any further plus value ( or losses ) are then considered as Capital Gain or loss, as per the adjusted cost base of the shares
CRA: Dividends are taxable to you whether you receive the dividend in cash or reinvest it in additional shares
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Does that work the same for Mutual Funds that have reinvested Dividends?
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Does that work the same for Mutual Funds that have reinvested Dividends?
I think so, however they may not include it on T5, check the CRA ( Canadian Revenu Agency ) web site, if I recall correctly they mention mutual funds and stocks, if not on your T5 then they say that you need to declare the amount (dividends received without a tax slip);
Honestky quite a nightmare the Canadian Tax system, maybe the IRS alsobu this I do not know
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My (and Tom's) answer are for U.S. taxation. If Canada has a special rule that the dividend income is not taxed until sale of the security as long as it's been reinvested, then these U.S. answers would not apply. I am not familiar with Canadian tax rules.
Quicken Mac Subscription; Quicken Mac user since the early 90s0 -
The IRS & CRA treat reinvested Dividends pretty much the same.
Gilles9 Explained it very well.
I would like to thank everybody for their contributions to this I think I have it figured out now. I appreciate it.
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