Don’ Overlook Reinvested Dividends
One of the most common mistakes investors make is forgetting to increase their basis in mutual funds to reflect reinvested dividends. Many mutual fund investors automatically reinvest dividends in additional shares of the fund. These reinvestments increase tax basis in the fund, which reduces capital gain (or increases capital loss) when the shares are sold.
If you neglect to include reinvested dividends in your basis, you’ll end up paying tax twice: first on the dividends when they’re reported to you on Form 1099-DIV, and again when you sell the shares and the reinvested dividends are included in the proceeds.
For questions about accounting for dividend reinvestments — or for other tax-smart strategies for your investments — contact us today, we would be happy to assist.
Wertz & Company, LLP, is an Irvine Tax Accounting and Professional Services Firm located in Orange County, CA that specializes in working with entrepreneurs along their journey to success.