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Naomi received a Form 1099-DIV reporting $104 in dividends for 2018. She had previously elected to have these dividends reinvested. Naomi's reinvested dividends for 2018, are ___________ a. Not taxable until the stock is sold b. Not taxable in 2018, but they increase her basis in the stock. c. Taxable on her 2018 return and increase her basis in the stock. d. Taxable and Naomi must include Schedule B with her 2018 return. e. Mark for follow up

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Answer: C - Taxable on her 2018 return and increase her basis in the stock.

Explanation: Dividends are the returns on investment which can be cash dividend or stock dividend.

These dividend received can be reinvested. If cash dividend is given, it can be reinvested into purchase of more stocks while if its stock dividend it might not be taxed immediately until the stock are sold.

Tax rate on investment is lower than the income tax rate. Dividend can be classified as ordinary dividend or qualified dividend.

An ordinary dividend are taxed as ordinary income while qualified dividend are that meets a certain criteria as subject to a lower Capital gains tax.

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