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Earn Tax-Free Passive Income in the Stock Market
In late 2021, I discovered a stock ticker family that provides high-yielding dividend returns—10% yearly. I decided to invest some money in these investments.
I started investing in these stocks in early 2022. Unfortunately, I failed to realize that the stock market was going into a bear market. When it became apparent that we were in a bear market, I had already invested several thousand dollars. Fortunately, while the NASDAQ and S&P 500 were down over 20%, these investments were down about 10% to 15%.
Although upset with myself, I decided to reinvest the dividends to offset the losses with dollar-cost averaging. Every reinvested dividend payment would have a lower entry price than my initial investment. The following month, that dividend reinvestment would earn a higher dividend payment rate since I had more shares per invested dollar than my initial investments. The initial investment loss took about two years to recover since a bull market followed in late 2022. Meanwhile, the dividend payments were growing in value.
I was worried about my tax liability in early 2023. I had reinvested the dividend payments and did not have extra cash to pay the taxes on those earnings—or so I thought. When I filed my taxes, I noticed my tax liability did not increase, and I wanted to know why. The 1099-DIV form classified…