Friday, November 28, 2008

Dividend Income Is Reportable

Many employers have stock purchase plans and encourage employees to purchase stock in the company they work for. Some company plans allow for the employee to choose between accepting a cash payout for the dividends or having the dividends re-invested to purchase more shares of stock. If an employee chooses the latter then this must be reported as income.

Sometimes a company will allow an employee to purchase shares below market value. In this case the shareholder must report as income the fair market value of the additional stock on the dividend payment date. If the plan allows the shareholder to invest more cash to buy shares of stock at a price less than fair market value then the shareholder must report as dividend income the difference between the cash invested and the fair market value of the stock purchased.

This can become a sticky area when there are lots of purchases when the stock fluctuates wildly. It would be a good idea to have a professional tax preparer determine exactly what must and what must not be reported.

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