If you're running the wheel on dividend-paying stocks like KO, JNJ, or PG, you're collecting income from three different sources every quarter: CSP premiums, covered call premiums, and dividends. The question traders ask is whether dividends should reduce your Adjusted Cost Basis the same way option premiums do. The answer depends on what you're calculating and why.
Should Dividends Reduce Your ACB for Performance Tracking Purposes?
Yes — from a portfolio performance perspective, dividends are real cash income that offset your cost of holding the stock. Just as collecting $2.50 in put premium reduces your effective purchase price by $2.50/share, collecting a $0.48 quarterly dividend reduces your out-of-pocket cost by another $0.48. For your personal campaign P&L tracking, including dividends gives you the most accurate picture of how much this position has actually cost you to own.
Performance ACB = (Share Cost − Premiums − Dividends) ÷ Shares
Should Dividends Reduce Your ACB for Tax Reporting Purposes?
No. The IRS treats qualified dividends and option premiums as completely different income types, taxed at different rates. Qualified dividends are taxed at long-term capital gains rates (0%, 15%, or 20% depending on your income). Short-term option premiums are taxed as ordinary income — potentially at a much higher rate. Mixing them in your tax basis calculation would create an inaccurate tax picture and potentially misrepresent your capital gains or losses on share sales.
How Do You Track Both Without Getting Confused?
The cleanest approach is to maintain two separate ACB figures per campaign:
- Performance ACB (used for your personal return calculations) — includes all premiums and dividends
- Tax ACB (used when reporting share sales to the IRS) — includes only premiums and fees, not dividends
OptionWheelTracker tracks both figures automatically — dividends are included in total campaign income and reduce your performance ACB, while your tax-reportable cost basis stays separate and correct.
How Much Do Dividends Actually Move the Needle?
For KO at roughly $0.48/quarter, that's $1.92/year per share — or $192/year on a standard 100-share position. Over a three-year wheel campaign that figure reaches $576. Combined with 2-3% monthly option premiums, the total income on a blue-chip dividend wheel is substantially more compelling than running the same strategy on a non-dividend growth stock, even if the premium rates are similar.