Income impact

Investing in stocks can impact your income mainly through dividends, capital gains distributions, and the actual gains realized when selling stocks. This is typically reported on your tax return as taxable income. Dividends, for example, are payments made by companies to shareholders and are subject to taxation. Similarly, capital gains distributions—which occur within mutual funds from the sale of stocks—and actual gains from selling your shares are taxable events.

One point of consideration is reinvesting dividends back into purchasing additional shares. While this reinvestment still counts as income and needs to be reported for tax purposes, the money isn’t directly received as cash; instead, it's used to increase your investment holdings. Despite the repurchase, all dividends received are considered taxable income and must be declared on your tax return1.