Do I have to pay taxes on dividends if I reinvest them?

Yes, dividends are taxable, whether you receive the monthly or quarterly payments in cash or you choose to reinvest the cash to buy additional shares.

They are taxed as "qualified dividends" and face long-term capital gains rates. The maximum penalty is 20 percent.

However, if the company pays investors a dividend in stock without an option between cash or stock, you might not pay a tax until the security is sold.

Now, here are some tips to avoid paying capital gains taxes:

• Use tax shelters.
• Donate your shares to a non-profit organization.
• Offset your capital losses.
• Maximize your retirement accounts and hold investments longer than one year.