2. You received dividends
What might happen: The IRS may want a cut of your dividends even if you automatically reinvested those dividends and didn’t receive any in cash, which is common with mutual funds, for example. It’s a rule that can startle new investors.
“That’s one of the surprises,” Ganoe says. “No money came back to them, but now they’ve got to pay tax on it.”
What tax rate you pay depends on the nature of the dividend. IRS Publication 550 has the details.
How to cope: Consider doing your trading inside a retirement account such as an IRA, says Gary DuBoff, a certified financial planner, CPA and principal at MBAF Certified Public Accountants and Advisors in New York. That way you may be able to defer, or in some cases avoid, a dividend tax bill until you make withdrawals in retirement.