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I put all my investment money in a managed account with Chase Private. The account is set up to reinvest all dividends, capital gain distributions and interests my stocks/mutual funds/treasury funds pay every once in a while.

I know the basic rules of federal taxation (interest is always ordinary income, dividends can be ordinary or qualified, etc.). Moreover, I know the fact that dividends becomes qualified also due to being held at least 60 days in the 121 days around the ex-dividend date.

So, right now, some dividends come from shares I bought months ago, while some dividends come from shares that were bought as reinvestment.

  1. Am I right in assuming that in this way some of the dividends will always be taxed as ordinary income?
  2. How can I properly calculate taxes (also to avoid backup withholding next year)?
  3. Do I need to truck each chunk of shares I bought for each security to understand which chunk gives qualified dividends and which one gives ordinary dividends?
  • Income tax questions require specifying your location. It appears you are in the U.S.? – ChrisInEdmonton Jan 2 '16 at 16:31
  • @ChrisInEdmonton The OP specified IRS, which implies USA. I tagged it for him. – user32479 Jan 2 '16 at 20:24
  • Does your bank not provide you with a statement breaking down your dividends into different tax categories? – BrenBarn Jan 2 '16 at 23:34
  • @BrenBarn: I hope so. Right know I did not care as I did the IRS Estimated Tax Worksheet for 2016, and, by treating everything as ordinary income and it turns out that my tax withholding from my salary covers it enough not to need to send tax payments before the standard deadline for 2015. – user180940 Jan 5 '16 at 11:32
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The dividend reinvestment won't change whether the dividends themselves are qualified or not for US income tax purposes. It's still the holding period on the stock that matters. If you bought stock in different lots, then you could have a situation where some of the dividends paid are qualified and some are not, but:

  • If you hold for 60 days after the dividend, the dividend will be qualified no longer how long you held it prior to the dividend. This is consistent with your statement about 60 days in the 121 days around the ex-date. The 60 days can be before or after.
  • Your statement about what's paying, in your case, seems wrong. Namely, you stated "... some dividends come come shares I bought months ago, while some dividends come from shares that were bought as reinvestment... ." In a situation with quarterly or yearly dividends (most common), all of the dividends that you are paid in your scenario were bought "months ago." The stock purchased with "this round" of dividends doesn't usually generate dividends "this round." They will generate dividends "next round." In a situation with monthly dividends, then it is true that some shares in your account will be paying a dividend that's "not yet" qualified - but if you're not selling any positions it will qualify once you've held it for 60 days and, in this case, you'll just report is as qualified.

For completeness, it's worth noting that some dividends cannot be "qualified" no matter how long you hold them, but if you've got an investment in a common corporate stock (vs. something more "exotic"), then what's above should apply.

  • Perhaps you can add a few words with regard to dividend and capital gain distributions by mutual funds? – Dilip Sarwate Jan 3 '16 at 0:10
  • @Brick: thanks! I completely overlooked the fact that if dividends are payed every three months (as in my case), then I will have held shares that generate them for more than 60 days in any case. I got confused with the 1-year holding rule for capital gains. – user180940 Jan 5 '16 at 11:38

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