How are dividends taxed when I automatically reinvest them in a taxable account?
Reinvested dividends are still taxable in the year you receive them, even though you never saw the cash and it went straight back into buying more shares. The IRS treats it as if you were paid the dividend and then chose to buy, so it lands on your 1099-DIV and you owe tax on it. The upside is that each reinvestment adds to your cost basis, since you effectively purchased shares with already-taxed money. Tracking that added basis is crucial: if you forget, you'll overstate your gain and pay tax twice on the same dollars when you sell. Most brokers track reinvestment basis automatically now, but verify it, especially for shares held before 2012 or transferred between brokers.
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