Dividend Reinvestment Basis Adjustment

TL;DR: This turns out not to be a clever way to save on taxes. However, you should make sure you don’t get taxed twice.

Some brokerage services allow you to automatically reinvest your dividends. Online websites seem to be misguiding by giving examples where you can adjust your basis, and this saves you on taxes somehow.

Let’s be clear – this isn’t some magical tax saving.

It is true that you can automatically reinvest your dividends. However, you will still be taxed on it as normal. It’s just that if you end up not adjusting your basis to reflect the extra purchases, you would be taxed twice.

But “adjusting your basis” is the same as taking your extra cash and buying more shares. There’s nothing special here. It’s exactly equivalent tax-wise to taking your dividend cash and buying a different stock that has exactly the same exposure.

Please be careful what you read online when blogs just want content, and do your own research!

Happy Research’ing,

TheJKW