Submitted by bnabin51 t3_11co35x in wallstreetbets
Consider a company XYZ is trading for $10. Then I shorted 100 shares and received $1000. Suppose the company provided a dividend of $1 per share and price got adjusted to $9. I had to pay $100 as a dividend. Suppose the stock price rose to $9.5 and I decided to buy back the short positions for $950. Do I need to pay tax for $50 ($1000 - $950) or reduce net taxable profit by $50 ($1000 - $100 - $950)?
That's what I thought too, but this happened: https://www.reddit.com/r/stocks/comments/11clbzq/is_the_dividend_paid_on_short_positions_tax/
Maybe you won, maybe you lost, but best of all you can still eat crayons.
>If you shorted the stock and then bought it back, you would need to pay tax on the $50 profit.
What about the $100 I paid for the dividend?
Depends on which country you live in, but dividend income tax can be completely separate to capital gains / other income tax
I live in the US.
If you don't own the shares then you don't get the dividends. An option is a right to purchase or sell, not ownership of the underlying stock.
In your case you ignore the dividends since you never recieved it.
Sounds to me a dividend hit his account during his short position (which was probably IDK, OP! a put position), and he likely exercised his position his way.
I had short calls (without shares) before ex-dividend and the call owner exercised them before ex-dividend, leading me to be in short positions of stocks. So, I had to pay dividends to the person from whom I borrowed the shares. https://www.reddit.com/r/stocks/comments/11clbzq/is_the_dividend_paid_on_short_positions_tax/
Dammmmmn you keeping those L's or can you share
Luckily, I won the overall trade.
5 months back, this had happened:
https://www.reddit.com/r/thetagang/comments/xftvgf/help_8_out_of_10_short_legs_of_calendar_spread/
So whatcha saying there's hope for MP puts expiring March 17 on sts Patty day lol
That's only possible if he owns the shares on the ex dividend date. An option is not share ownership.
It is possible idk OP should just be happy lol that he has a profit to pay taxes lol
If he bought a put and was assigned he would own the stock. If he then held the stock through the ex-dividend date then he would get the dividends. However, this is not how I read OP's post.
if you short the shares, you pay the dividend. it could be different line items on the 1099, capital gain and investment interest expense, which theoretically offset each other, but technically are in different buckets.
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You might want to look up "wash sale" in IRS and the rules behind it. https://www.irs.gov/publications/p550
You don't ever pay dividends, the company does.
From what I have understood so far, if I shorted stock, I need to borrow the shares from someone else. The company pays dividends to the one who bought from me. However, I need to pay the person from whom I borrowed the shares, don't I?
If you received the dividend payment, that will go back to the whomever you borrowed the shares from. You do not need to pay anything extra to the lender of the shares.
That dividend payment will not be considered capital gains and you will not need to pay tax on it.
Sorry if I explained it incorrectly. I did not receive a dividend. To receive a dividend, I need to be in a long position. However, I was in a short position.
If you did not receive a dividend on the borrowed shares, then you do not need to pay a dividend
Then who pays the dividend to the stock lender?
The company pays out the dividend payments to it's stock holders, including the person you are borrowing the shares from
emielbo2 t1_ja45bgi wrote
Its counted as investment interest in the US, assuming you hold the position for longer than 45 days. If you held it for shorter than 45 days the cost gets added to your purchase cost. In the end both results are the same (increasing your cost base), just the item on your taxes changes.
Edit: for tax purposes you made a loss (option 2).