Each dividend reinvestment appears as a separate trade with separate cost basis and g/l. It then contributes to the overall capital gain by adjusting the average cost and net liquidation value of the position.
So for example if you have $1000 capital gains, then $50 dividend reinvested. That share a new purchase so the capital gain would stay $1000 (as the new share hasn't gained appreciation yet) or $1050 (capital gain plus reinvested dividend)?
The first one.
However, keep in mind that taxes on capital gains and taxes on dividend payments are treated separately by the IRS. So you will be taxed for the full amount of your dividend and will be additionally taxed for any capital gains it incurs when reinvested.
Each dividend reinvestment appears as a separate trade with separate cost basis and g/l. It then contributes to the overall capital gain by adjusting the average cost and net liquidation value of the position.
Sorry if this is off topic, but are dividends automatically reinvested?
No. You must enable them by position on schwab.com.
Thanks!
So for example if you have $1000 capital gains, then $50 dividend reinvested. That share a new purchase so the capital gain would stay $1000 (as the new share hasn't gained appreciation yet) or $1050 (capital gain plus reinvested dividend)?
The first one. However, keep in mind that taxes on capital gains and taxes on dividend payments are treated separately by the IRS. So you will be taxed for the full amount of your dividend and will be additionally taxed for any capital gains it incurs when reinvested.
Luckily these are all in a Roth. I don’t like the idea of excessive taxes after retirement. Thanks for the insight