Tax Omissions – Reinvested Dividends
One of the most commonly overlooked investment related tax omissions investors make is forgetting to increase their cost basis in mutual funds to properly reflect reinvested dividends. Many mutual fund investors automatically reinvest dividends in additional shares of the fund as opposed to taking cash dividends. These reinvestments increase tax basis in the fund, which reduces capital gain (or increases capital loss) when the shares are sold.
If you don’t account for reinvested dividends in your cost 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.
You will want to utilize the services of an experienced tax accountant to help ensure you’re properly accounting for dividend reinvestments when you’re reviewing your 1099-DIV forms and filing your 2014 tax return.
Ciuni & Panichi can help with any questions or other tax-efficient strategies for your investments. Contact Jim Komos at 216-831-7171 or jkomos@cp-advisors.com.
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