Finance, Forex and Investments

Any tax benefits to reinvesting your dividends from mutual funds?

I have a few mutual funds with fidelity which distribute dividends once a year. By default all the dividends are reinvested back into the funds. I would rather have the dividends in cash so I can invest into different funds. Is there any tax benefits to having the dividends reinvested instead of just taking the dividend in cash? Thanks

Public Comments

1. No. They are taxed the same either way.
2. You pay tax on the amount either way, so no there's no tax benefits in reinvesting. Keep track of the amounts of the reinvested dividends though, since you'll be able to add them to your basis when you sell the fund shares - you've already paid the tax, so you don't have to pay it again on that amount.
3. No tax benefits but a big tax complication. When you sell you have to go back over all years you reinvested dividends to compute your total cost basis to compute capital gain or loss. A nightmare if you fail to track this annually.