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Are Non-Cash dividends taxable

joegarcia
Level 2

if a client receives a non-cash dividend on stock they already own, is that taxable?

 

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pamdory
Level 8

That's a stock dividend.  Usually stock dividends aren't a taxable event, it just affects the basis of the shares.  If you owned 10 shares you paid $100 for, you get a stock dividend of 1 share.  The per share basis goes from $10/sh to $9.09/sh (11 shares/$100).

There are exceptions that can create a taxable event.  Like if the shareholder chooses to receive add'l shares in lieu of cash, or the dividend shares affects the SH proportionate interest and some preferred stock distributions.  Refer to Sec. 305(b).

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6 Comments 6
pamdory
Level 8

How was the dividend paid?

Or is it a non-dividend distribution?

IRonMaN
Level 15

Did they get a new car?  The more detail you provide in a question increases your odds of getting a more correct answer.


Slava Ukraini!
joegarcia
Level 2

Non-Cash Dividend is in the form of stock (company issues additional stock).

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joegarcia
Level 2

The non-cash dividend was stock in the company.

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pamdory
Level 8

That's a stock dividend.  Usually stock dividends aren't a taxable event, it just affects the basis of the shares.  If you owned 10 shares you paid $100 for, you get a stock dividend of 1 share.  The per share basis goes from $10/sh to $9.09/sh (11 shares/$100).

There are exceptions that can create a taxable event.  Like if the shareholder chooses to receive add'l shares in lieu of cash, or the dividend shares affects the SH proportionate interest and some preferred stock distributions.  Refer to Sec. 305(b).

joegarcia
Level 2

Thanks for the guidance!

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