Quote:
Originally Posted by long101
Im probably not explaining my issue correctly. So when you get your dividend you do have $110, but it doesnt make any difference what its worth unitl you sell it. So you pay taxes on your $10 dividend, then sell the stock a year later for $100 (because the stock price declined). You have effectively paid taxes on 10 bucks which was not a 'real' gain.
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To be as simple as possible...
year 0 - you purchase 1 share of stock at $100 per share. = $100 in portfolio
year 1 - after the first year, you get a dividend of 10%, which is $10 that you reinvest into the stock. This brings you to 1.1 shares of stock. = $110 in portfolio
You will have been taxed for the 10 dollars though at the end of year 1.
year 2 - during the middle of year 2, you decide to sell. If the price of the stock is still 100, you will not have any more taxes, you will sell 1.1 shares of stock at 100 dollars a share for a grand total of $110. If the price of the stock went up before you sold, you would then have to pay taxes on the difference between $110 purchase price and the sell price. So if the stock went to 150, and you sold 1.1 shares you would get $165 and have to pay taxes on $55 more dollars because that is more capital gains.
Don't worry about the stock going up on the dividend and then dropping back down. That's all too advanced for what is concerning you right now. All you have to worry about is that you will get taxed on what you earn that year. So in year 1 you would have been taxed on the $10 dollar dividend you earned, and year 2 you would have been taxed on the $55 dollar gain in share price.
I hope that helps you a little more.
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