What are the tax implications of reinvesting dividends?

What are the tax implications of reinvesting dividends?

When you reinvest dividends, they are typically taxed as ordinary income in the year they are received, even if you don't take the cash.

So, I have to pay taxes on dividends I didn't actually receive in cash?

Yes, that's correct. The IRS considers reinvested dividends as income, so you'll need to report them on your tax return.

Are there any strategies to minimize taxes on reinvested dividends?

One strategy is to hold dividend-paying stocks in tax-advantaged accounts like IRAs, where you can defer taxes.

What if I sell the stocks later? How does that affect my taxes?

When you sell the stocks, you'll pay capital gains tax on the difference between the sale price and your adjusted cost basis, which includes reinvested dividends.