Basic question about stocks, dividends, brokerage accounts and taxes

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hedgehog
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Basic question about stocks, dividends, brokerage accounts and taxes

Post by hedgehog » Wed May 07, 2014 3:44 am

Say I hold AAPL or any stock at dividend paying time on an ordinary brokerage account. Will the dividends be added as an extra cash balance to the brokerage account?

What are the tax consequences? Can I get a tax break if I do not cash it out but reinvest - in the same AAPL or any other - stock?
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WildAboutHarry
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Re: Basic question about stocks, dividends, brokerage accounts and taxes

Post by WildAboutHarry » Wed May 07, 2014 4:59 am

Yes, unless you instructed your broker to reinvest the dividend in additional shares.

Dividends are taxable at the dividend rate.  Reinvestment does not alter tax consequences. 

Unless the stock is held in a tax-deferred account.
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Re: Basic question about stocks, dividends, brokerage accounts and taxes

Post by dualstow » Wed May 07, 2014 9:55 am

Adding to what WAH said above, if you're in a low tax bracket you might not have much tax to pay once the dividend becomes an ordinary dividend. (You have to hold the stock for, what, 66 days or 6 months? I forget, because mine are five years old).

From the Wall Street Journal:
But there remains a zero rate on capital gains and dividends "for taxpayers taxed in the 10% and 15% brackets for ordinary income," says the EY Tax Guide 2014.
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