Non cash liquidating distributions
Shareholders in an S corporation must keep careful track of their tax basis.The amount of the tax basis determines the tax treatment of such items as flow-through losses and corporate distributions.Distributions in excess of basis are treated as gains from the sale of stock.
Most tax preparation software programs ask you to input the information from your 1099-DIV, and then proceed to make the necessary calculations for you and record them on the appropriate tax forms.
In the eyes of the IRS, this circumstance is the same as if you received a check for .24 and then immediately purchased .24 worth of the stock.
A DRIP is simply more convenient and has additional advantages to purchasing stock, such as dollar cost averaging.
Each quarter, when your dividend payments are automatically reinvested to acquire more stock, you inevitably buy shares at different prices, which determines your cost basis in those shares.
When you eventually sell your stock for a capital gain or loss, you need to know your cost basis for each share sold.However, it’s important to know what you earn over the course of the year in dividends in order to anticipate how much your tax bill will increase as a result.