How are Taxes on Reinvested Dividends handled - double taxation question

But how do you keep track of all those different purchase prices? I've been reinvesting dividends for years and I have no idea what my actual cost basis is anymore. Is this something my brokerage tracks for me?

Fortunately, brokerages are required to track cost basis information for stocks purchased after 2011. You should be able to see this information in your account or on your annual tax forms. This tracking includes shares acquired through dividend reinvestment programs. For shares purchased before 2011, you might need to dig through your records. Some brokerages still provide this information even for older holdings, but it's not legally required. If you don't have these records, you might need to estimate your basis using available information.

Does it work with all the major brokerages? I use Fidelity and Vanguard and they sometimes present the information differently which gets confusing.

I'm skeptical about using third-party tools for tax stuff. Is it secure? Like how do you know they're not storing all your financial data to sell to marketers or whatever?

Yes, it works with all the major brokerages I've tried. I uploaded statements from both Schwab and TD Ameritrade without any issues, and I know they support Fidelity and Vanguard as well. It automatically adapts to different statement formats. Regarding security concerns, I had the same worry initially. They use bank-level encryption and don't store your documents after processing. They also have a pretty clear privacy policy that prohibits selling your data. You can also just upload specific pages of statements if you're concerned about sharing everything.

Wait, this actually works? I thought the IRS was basically unreachable by phone these days. How much does something like this cost?

This sounds too good to be true. The IRS hold times are legendary. I've literally waited 3+ hours before giving up. How exactly does holding your place in line even work technically? Sounds like some kind of scam to me.

Yes, it actually works! I was surprised too. The IRS is definitely hard to reach, but this service monitors the hold so you don't have to stay on the line yourself. The technology works by essentially making the call for you and then connecting you when a human actually answers. It's like having someone else wait on hold while you go about your day. When they detect that an agent is about to pick up, they call your phone and connect you. The IRS never knows a third party was involved - to them it's just a regular call.

Thanks for this additional info! Yes, mine is just a regular taxable brokerage account. One follow-up question - how do I know if my dividends are "qualified" or "ordinary"? Does this affect the tax rate I pay?

Qualified dividends are taxed at the lower capital gains tax rate (0%, 15%, or 20% depending on your income), while ordinary (non-qualified) dividends are taxed as regular income. For dividends to be "qualified," you generally need to have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Also, most common dividends from U.S. corporations and certain foreign corporations are qualified, but things like REITs, MLPs, and special dividends are typically not qualified.

Which tax software did you find handles dividend reinvestments the best? I've been using FreeTaxUSA but wondering if one of the paid ones might be better for handling investments.

The core treatment of reinvested dividends hasn't changed for 2025. However, there are some reporting changes that brokerages need to follow that might make your 1099-DIV look slightly different. The basis reporting requirements have been enhanced to provide more detail, but this is mostly a change for the brokerages, not for taxpayers. You'll still report dividends received in 2024 on your 2025 tax return the same way as before.