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2010 Publication 939 - Introductory Material Table of Contents What's New Future developments. 2010 IntroductionSimplified Method. 2010 Ordering forms and publications. 2010 Tax questions. 2010 Useful Items - You may want to see: What's New Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). 2010 For more information, see the instructions for Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts. 2010 Future developments. 2010 For the latest information about developments related to Publication 939, such as legislation enacted after it was published, go to www. 2010 IRS. 2010 gov/pub939. 2010 Introduction This publication gives you the information you need to determine the tax treatment of your pension and annuity income under the General Rule. 2010 Generally, each of your monthly annuity payments is made up of two parts: the tax-free part that is a return of your net cost, and the taxable balance. 2010 What is the General Rule. 2010 The General Rule is one of the two methods used to figure the tax-free part of each annuity payment based on the ratio of your investment in the contract to the total expected return. 2010 The other method is the Simplified Method, which is discussed in Publication 575, Pension and Annuity Income. 2010 Who must use the General Rule. 2010 Use this publication if you receive pension or annuity payments from: A nonqualified plan (for example, a private annuity, a purchased commercial annuity, or a nonqualified employee plan), A qualified plan if: Your annuity starting date is before November 19, 1996 (and after July 1, 1986), and you do not qualify to use, or did not choose to use, the Simplified Method, or Your annuity starting date is after November 18, 1996, and as of that date you are age 75 or over and the annuity payments are guaranteed for at least 5 years. 2010 If your annuity starting date was between July 1, 1986 and November 19, 1996, you were able to elect to use the Simplified Method or the General Rule. 2010 This choice is irrevocable and applied to all later annuity payments. 2010 The following are qualified plans. 2010 A qualified employee plan. 2010 A qualified employee annuity. 2010 A tax-sheltered annuity (TSA) plan or contract. 2010 Simplified Method. 2010 If you receive pension or annuity payments from a qualified plan and you are not required to use the General Rule, you must use the Simplified Method to determine the tax-free part of each annuity payment. 2010 This method is described in Publication 575, Pension and Annuity Income. 2010 Also, if, at the time the annuity payments began, you were at least age 75 and were entitled to annuity payments from a qualified plan with fewer than 5 years of guaranteed payments, you must use the Simplified Method. 2010 Beginning in 2013, distributions from an annuity under a nonqualified plan are considered net investment income for the purpose of figuring the net investment income tax (NIIT). 2010 For more information, see the instructions for Form 8960, Net Investment Income Tax – Individuals, Estates and Trusts. 2010 Topics not covered in this publication. 2010 Certain topics related to pensions and annuities are not covered in this publication. 2010 They include: Simplified Method. 2010 This method is covered in Publication 575. 2010 That publication also covers nonperiodic payments (amounts not received as an annuity) from a qualified pension or annuity plan, rollovers, special averaging and capital gain treatment of lump-sum distributions, and special additional taxes on early distributions, excess distributions, and excess accumulations (not making required minimum distributions). 2010 Individual retirement arrangements (IRAs). 2010 Information on the tax treatment of amounts you receive from an IRA is included in Publication 590, Individual Retirement Arrangements (IRAs). 2010 Life insurance payments. 2010 If you receive life insurance payments because of the death of the insured person, get Publication 525, Taxable and Nontaxable Income, for information on the tax treatment of the proceeds. 2010 Help from IRS. 2010 If, after reading this publication, you need help to figure the taxable part of your pension or annuity, the IRS can do it for you for a fee. 2010 For information on this service, see Requesting a Ruling on Taxation of Annuity , later. 2010 Comments and suggestions. 2010 We welcome your comments about this publication and your suggestions for future editions. 2010 You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. 2010 NW, IR-6526 Washington, DC 20224 We respond to many letters by telephone. 2010 Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. 2010 You can send your comments from www. 2010 irs. 2010 gov/formspubs/. 2010 Click on “More Information” and then on “Comment on Tax Forms and Publications”. 2010 Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. 2010 Ordering forms and publications. 2010 Visit www. 2010 irs. 2010 gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. 2010 Internal Revenue Service 1201 N. 2010 Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. 2010 If you have a tax question, check the information available on IRS. 2010 gov or call 1-800-829-1040. 2010 We cannot answer tax questions sent to either of the above addresses. 2010 Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 571 Tax-Sheltered Annuity Plans (403(b) Plans) 575 Pension and Annuity Income 590 Individual Retirement Arrangements (IRAs) 721 Tax Guide to U. 2010 S. 2010 Civil Service Retirement Benefits 910 Guide To Free Tax Services Form (and Instructions) 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. 2010 See How To Get Tax Help near the end of this publication for information about getting these publications and forms. 2010 Prev Up Next Home More Online Publications
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2010 8. 2010 Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. 2010 Reporting tax withheld. 2010 Nominees. 2010 Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. 2010 Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. 2010 Alternative minimum tax treatment. 2010 How To Report Dividend IncomeInvestment interest deducted. 2010 Reminder Foreign-source income. 2010 If you are a U. 2010 S. 2010 citizen with dividend income from sources outside the United States (foreign-source income), you must report that income on your tax return unless it is exempt by U. 2010 S. 2010 law. 2010 This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer. 2010 Introduction This chapter discusses the tax treatment of: Ordinary dividends, Capital gain distributions, Nondividend distributions, and Other distributions you may receive from a corporation or a mutual fund. 2010 This chapter also explains how to report dividend income on your tax return. 2010 Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. 2010 You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. 2010 However, some amounts you receive that are called dividends are actually interest income. 2010 (See Dividends that are actually interest under Taxable Interest in chapter 7. 2010 ) Most distributions are paid in cash (or check). 2010 However, distributions can consist of more stock, stock rights, other property, or services. 2010 Useful Items - You may want to see: Publication 514 Foreign Tax Credit for Individuals 550 Investment Income and Expenses Form (and Instructions) Schedule B (Form 1040A or 1040) Interest and Ordinary Dividends General Information This section discusses general rules for dividend income. 2010 Tax on unearned income of certain children. 2010 Part of a child's 2013 unearned income may be taxed at the parent's tax rate. 2010 If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. 2010 If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. 2010 Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. 2010 Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. 2010 For more information about the tax on unearned income of children and the parents' election, see chapter 31. 2010 Beneficiary of an estate or trust. 2010 Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. 2010 You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. 2010 , from the fiduciary. 2010 Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. 2010 Social security number (SSN) or individual taxpayer identification number (ITIN). 2010 You must give your SSN or ITIN to any person required by federal tax law to make a return, statement, or other document that relates to you. 2010 This includes payers of dividends. 2010 If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. 2010 For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. 2010 Backup withholding. 2010 Your dividend income is generally not subject to regular withholding. 2010 However, it may be subject to backup withholding to ensure that income tax is collected on the income. 2010 Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. 2010 Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. 2010 For more information, see Backup Withholding in chapter 4. 2010 Stock certificate in two or more names. 2010 If two or more persons hold stock as joint tenants, tenants by the entirety, or tenants in common, each person's share of any dividends from the stock is determined by local law. 2010 Form 1099-DIV. 2010 Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. 2010 Keep this form with your records. 2010 You do not have to attach it to your tax return. 2010 Dividends not reported on Form 1099-DIV. 2010 Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. 2010 For example, you may receive distributive shares of dividends from partnerships or S corporations. 2010 These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. 2010 , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. 2010 Reporting tax withheld. 2010 If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. 2010 Nominees. 2010 If someone receives distributions as a nominee for you, that person should give you a Form 1099-DIV, which will show distributions received on your behalf. 2010 Form 1099-MISC. 2010 Certain substitute payments in lieu of dividends or tax-exempt interest received by a broker on your behalf must be reported to you on Form 1099-MISC, Miscellaneous Income, or a similar statement. 2010 See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. 2010 Incorrect amount shown on a Form 1099. 2010 If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. 2010 The new Form 1099 you receive will be marked “Corrected. 2010 ” Dividends on stock sold. 2010 If stock is sold, exchanged, or otherwise disposed of after a dividend is declared but before it is paid, the owner of record (usually the payee shown on the dividend check) must include the dividend in income. 2010 Dividends received in January. 2010 If a mutual fund (or other regulated investment company) or real estate investment trust (REIT) declares a dividend (including any exempt-interest dividend or capital gain distribution) in October, November, or December, payable to shareholders of record on a date in one of those months but actually pays the dividend during January of the next calendar year, you are considered to have received the dividend on December 31. 2010 You report the dividend in the year it was declared. 2010 Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. 2010 They are paid out of earnings and profits and are ordinary income to you. 2010 This means they are not capital gains. 2010 You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. 2010 Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. 2010 Qualified Dividends Qualified dividends are the ordinary dividends subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. 2010 They should be shown in box 1b of the Form 1099-DIV you receive. 2010 The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. 2010 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. 2010 6%. 2010 20% on any amount that otherwise would be taxed at a 39. 2010 6% rate. 2010 To qualify for the maximum rate, all of the following requirements must be met. 2010 The dividends must have been paid by a U. 2010 S. 2010 corporation or a qualified foreign corporation. 2010 (See Qualified foreign corporation , later. 2010 ) The dividends are not of the type listed later under Dividends that are not qualified dividends . 2010 You meet the holding period (discussed next). 2010 Holding period. 2010 You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. 2010 The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. 2010 Instead, the seller will get the dividend. 2010 When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it. 2010 See the examples later. 2010 Exception for preferred stock. 2010 In the case of preferred stock, you must have held the stock more than 90 days during the 181-day period that begins 90 days before the ex-dividend date if the dividends are due to periods totaling more than 366 days. 2010 If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. 2010 Example 1. 2010 You bought 5,000 shares of XYZ Corp. 2010 common stock on July 9, 2013. 2010 XYZ Corp. 2010 paid a cash dividend of 10 cents per share. 2010 The ex-dividend date was July 16, 2013. 2010 Your Form 1099-DIV from XYZ Corp. 2010 shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). 2010 However, you sold the 5,000 shares on August 12, 2013. 2010 You held your shares of XYZ Corp. 2010 for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). 2010 The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. 2010 You have no qualified dividends from XYZ Corp. 2010 because you held the XYZ stock for less than 61 days. 2010 Example 2. 2010 Assume the same facts as in Example 1 except that you bought the stock on July 15, 2013 (the day before the ex-dividend date), and you sold the stock on September 16, 2013. 2010 You held the stock for 63 days (from July 16, 2013, through September 16, 2013). 2010 The $500 of qualified dividends shown in box 1b of your Form 1099-DIV are all qualified dividends because you held the stock for 61 days of the 121-day period (from July 16, 2013, through September 14, 2013). 2010 Example 3. 2010 You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. 2010 ABC Mutual Fund paid a cash dividend of 10 cents a share. 2010 The ex-dividend date was July 16, 2013. 2010 The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. 2010 Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. 2010 However, you sold the 10,000 shares on August 12, 2013. 2010 You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. 2010 Holding period reduced where risk of loss is diminished. 2010 When determining whether you met the minimum holding period discussed earlier, you cannot count any day during which you meet any of the following conditions. 2010 You had an option to sell, were under a contractual obligation to sell, or had made (and not closed) a short sale of substantially identical stock or securities. 2010 You were grantor (writer) of an option to buy substantially identical stock or securities. 2010 Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. 2010 For information about how to apply condition (3), see Regulations section 1. 2010 246-5. 2010 Qualified foreign corporation. 2010 A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. 2010 The corporation is incorporated in a U. 2010 S. 2010 possession. 2010 The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Treasury Department determines is satisfactory for this purpose and that includes an exchange of information program. 2010 For a list of those treaties, see Table 8-1. 2010 The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States. 2010 See Readily tradable stock , later. 2010 Exception. 2010 A corporation is not a qualified foreign corporation if it is a passive foreign investment company during its tax year in which the dividends are paid or during its previous tax year. 2010 Readily tradable stock. 2010 Any stock (such as common, ordinary, or preferred) or an American depositary receipt in respect of that stock is considered to satisfy requirement (3) under Qualified foreign corporation , if it is listed on a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934 or on the Nasdaq Stock Market. 2010 For a list of the exchanges that meet these requirements, see www. 2010 sec. 2010 gov/divisions/marketreg/mrexchanges. 2010 shtml. 2010 Dividends that are not qualified dividends. 2010 The following dividends are not qualified dividends. 2010 They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. 2010 Capital gain distributions. 2010 Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. 2010 S. 2010 building and loan associations, U. 2010 S. 2010 savings and loan associations, federal savings and loan associations, and similar financial institutions. 2010 (Report these amounts as interest income. 2010 ) Dividends from a corporation that is a tax-exempt organization or farmer's cooperative during the corporation's tax year in which the dividends were paid or during the corporation's previous tax year. 2010 Dividends paid by a corporation on employer securities held on the date of record by an employee stock ownership plan (ESOP) maintained by that corporation. 2010 Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. 2010 Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. 2010 Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. 2010 Table 8-1. 2010 Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. 2010 Australia Indonesia Romania Austria Ireland Russian Bangladesh Israel Federation Barbados Italy Slovak Belgium Jamaica Republic Bulgaria Japan Slovenia Canada Kazakhstan South Africa China Korea Spain Cyprus Latvia Sri Lanka Czech Lithuania Sweden Republic Luxembourg Switzerland Denmark Malta Thailand Egypt Mexico Trinidad and Estonia Morocco Tobago Finland Netherlands Tunisia France New Zealand Turkey Germany Norway Ukraine Greece Pakistan United Hungary Philippines Kingdom Iceland Poland Venezuela India Portugal Dividends Used to Buy More Stock The corporation in which you own stock may have a dividend reinvestment plan. 2010 This plan lets you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. 2010 Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. 2010 If you use your dividends to buy more stock at a price equal to its fair market value, you still must report the dividends as income. 2010 If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as dividend income the fair market value of the additional stock on the dividend payment date. 2010 You also must report as dividend income any service charge subtracted from your cash dividends before the dividends are used to buy the additional stock. 2010 But you may be able to deduct the service charge. 2010 See chapter 28 for more information about deducting expenses of producing income. 2010 In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. 2010 If you choose to do this, you must report as dividend income the difference between the cash you invest and the fair market value of the stock you buy. 2010 When figuring this amount, use the fair market value of the stock on the dividend payment date. 2010 Money Market Funds Report amounts you receive from money market funds as dividend income. 2010 Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. 2010 Capital Gain Distributions Capital gain distributions (also called capital gain dividends) are paid to you or credited to your account by mutual funds (or other regulated investment companies) and real estate investment trusts (REITs). 2010 They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. 2010 Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. 2010 Undistributed capital gains of mutual funds and REITs. 2010 Some mutual funds and REITs keep their long-term capital gains and pay tax on them. 2010 You must treat your share of these gains as distributions, even though you did not actually receive them. 2010 However, they are not included on Form 1099-DIV. 2010 Instead, they are reported to you in box 1a of Form 2439. 2010 Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. 2010 The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. 2010 You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. 2010 Attach Copy B of Form 2439 to your return, and keep Copy C for your records. 2010 Basis adjustment. 2010 Increase your basis in your mutual fund, or your interest in a REIT, by the difference between the gain you report and the credit you claim for the tax paid. 2010 Additional information. 2010 For more information on the treatment of distributions from mutual funds, see Publication 550. 2010 Nondividend Distributions A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. 2010 You should receive a Form 1099-DIV or other statement showing the nondividend distribution. 2010 On Form 1099-DIV, a nondividend distribution will be shown in box 3. 2010 If you do not receive such a statement, you report the distribution as an ordinary dividend. 2010 Basis adjustment. 2010 A nondividend distribution reduces the basis of your stock. 2010 It is not taxed until your basis in the stock is fully recovered. 2010 This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. 2010 If you buy stock in a corporation in different lots at different times, and you cannot definitely identify the shares subject to the nondividend distribution, reduce the basis of your earliest purchases first. 2010 When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. 2010 Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. 2010 See Holding Period in chapter 14. 2010 Example. 2010 You bought stock in 2000 for $100. 2010 In 2003, you received a nondividend distribution of $80. 2010 You did not include this amount in your income, but you reduced the basis of your stock to $20. 2010 You received a nondividend distribution of $30 in 2013. 2010 The first $20 of this amount reduced your basis to zero. 2010 You report the other $10 as a long-term capital gain for 2013. 2010 You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. 2010 Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. 2010 These distributions are, at least in part, one form of a return of capital. 2010 They may be paid in one or more installments. 2010 You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. 2010 For more information on liquidating distributions, see chapter 1 of Publication 550. 2010 Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. 2010 Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. 2010 Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. 2010 Taxable stock dividends and stock rights. 2010 Distributions of stock dividends and stock rights are taxable to you if any of the following apply. 2010 You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. 2010 The distribution gives cash or other property to some shareholders and an increase in the percentage interest in the corporation's assets or earnings and profits to other shareholders. 2010 The distribution is in convertible preferred stock and has the same result as in (2). 2010 The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. 2010 The distribution is on preferred stock. 2010 (The distribution, however, is not taxable if it is an increase in the conversion ratio of convertible preferred stock made solely to take into account a stock dividend, stock split, or similar event that would otherwise result in reducing the conversion right. 2010 ) The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. 2010 If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. 2010 Preferred stock redeemable at a premium. 2010 If you hold preferred stock having a redemption price higher than its issue price, the difference (the redemption premium) generally is taxable as a constructive distribution of additional stock on the preferred stock. 2010 For more information, see chapter 1 of Publication 550. 2010 Basis. 2010 Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. 2010 If you receive stock or stock rights that are not taxable to you, see Stocks and Bonds under Basis of Investment Property in chapter 4 of Publication 550 for information on how to figure their basis. 2010 Fractional shares. 2010 You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. 2010 However, with the approval of the shareholders, the corporation may set up a plan in which fractional shares are not issued but instead are sold, and the cash proceeds are given to the shareholders. 2010 Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. 2010 Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. 2010 Enter your gain or loss, the difference between the cash you receive and the basis of the fractional shares sold, in column (h) of Schedule D (Form 1040) in Part I or Part II, whichever is appropriate. 2010 Report these transactions on Form 8949 with the correct box checked. 2010 For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. 2010 Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). 2010 Example. 2010 You own one share of common stock that you bought on January 3, 2004, for $100. 2010 The corporation declared a common stock dividend of 5% on June 29, 2013. 2010 The fair market value of the stock at the time the stock dividend was declared was $200. 2010 You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. 2010 You figure your gain or loss as follows: Fair market value of old stock $200. 2010 00 Fair market value of stock dividend (cash received) +10. 2010 00 Fair market value of old stock and stock dividend $210. 2010 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. 2010 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. 2010 76 Total $100. 2010 00 Cash received $10. 2010 00 Basis (cost) of stock dividend − 4. 2010 76 Gain $5. 2010 24 Because you had held the share of stock for more than 1 year at the time the stock dividend was declared, your gain on the stock dividend is a long-term capital gain. 2010 Scrip dividends. 2010 A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. 2010 The certificate is generally nontaxable when you receive it. 2010 If you choose to have the corporation sell the certificate for you and give you the proceeds, your gain or loss is the difference between the proceeds and the portion of your basis in the corporation's stock allocated to the certificate. 2010 However, if you receive a scrip certificate that you can choose to redeem for cash instead of stock, the certificate is taxable when you receive it. 2010 You must include its fair market value in income on the date you receive it. 2010 Other Distributions You may receive any of the following distributions during the year. 2010 Exempt-interest dividends. 2010 Exempt-interest dividends you receive from a mutual fund or other regulated investment company, including those received from a qualified fund of funds in any tax year beginning after December 22, 2010, are not included in your taxable income. 2010 Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. 2010 Information reporting requirement. 2010 Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. 2010 This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. 2010 Alternative minimum tax treatment. 2010 Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. 2010 See Alternative Minimum Tax (AMT) in chapter 30 for more information. 2010 Dividends on insurance policies. 2010 Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. 2010 However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. 2010 If dividends on an insurance contract (other than a modified endowment contract) are distributed to you, they are a partial return of the premiums you paid. 2010 Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. 2010 Report any taxable distributions on insurance policies on Form 1040, line 21. 2010 Dividends on veterans' insurance. 2010 Dividends you receive on veterans' insurance policies are not taxable. 2010 In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. 2010 Patronage dividends. 2010 Generally, patronage dividends you receive in money from a cooperative organization are included in your income. 2010 Do not include in your income patronage dividends you receive on: Property bought for your personal use, or Capital assets or depreciable property bought for use in your business. 2010 But you must reduce the basis (cost) of the items bought. 2010 If the dividend is more than the adjusted basis of the assets, you must report the excess as income. 2010 These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. 2010 Alaska Permanent Fund dividends. 2010 Do not report these amounts as dividends. 2010 Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. 2010 How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. 2010 Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. 2010 Report qualified dividends on line 9b of Form 1040 or Form 1040A. 2010 If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. 2010 See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. 2010 If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. 2010 You cannot use Form 1040EZ if you receive any dividend income. 2010 Form 1099-DIV. 2010 If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. 2010 Even if you do not receive Form 1099-DIV, you must report all your dividend income. 2010 See Form 1099-DIV for more information on how to report dividend income. 2010 Form 1040A or 1040. 2010 You must complete Schedule B (Form 1040A or 1040), Part II, and attach it to your Form 1040A or 1040, if: Your ordinary dividends (Form 1099-DIV, box 1a) are more than $1,500, or You received, as a nominee, dividends that actually belong to someone else. 2010 If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. 2010 List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. 2010 If your securities are held by a brokerage firm (in “street name”), list the name of the brokerage firm shown on Form 1099-DIV as the payer. 2010 If your stock is held by a nominee who is the owner of record, and the nominee credited or paid you dividends on the stock, show the name of the nominee and the dividends you received or for which you were credited. 2010 Enter on line 6 the total of the amounts listed on line 5. 2010 Also enter this total on line 9a of Form 1040A or 1040. 2010 Qualified dividends. 2010 Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. 2010 The amount in box 1b is already included in box 1a. 2010 Do not add the amount in box 1b to, or substract it from, the amount in box 1a. 2010 Do not include any of the following on line 9b. 2010 Qualified dividends you received as a nominee. 2010 See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. 2010 Dividends on stock for which you did not meet the holding period. 2010 See Holding period , earlier under Qualified Dividends. 2010 Dividends on any share of stock to the extent you are obligated (whether under a short sale or otherwise) to make related payments for positions in substantially similar or related property. 2010 Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. 2010 Payments shown in Form 1099-DIV, box 1b, from a foreign corporation to the extent you know or have reason to know the payments are not qualified dividends. 2010 If you have qualified dividends, you must figure your tax by completing the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 or 1040A instructions or the Schedule D Tax Worksheet in the Schedule D (Form 1040) instructions, whichever applies. 2010 Enter qualified dividends on line 2 of the worksheet. 2010 Investment interest deducted. 2010 If you claim a deduction for investment interest, you may have to reduce the amount of your qualified dividends that are eligible for the 0%, 15%, or 20% tax rate. 2010 Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. 2010 This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. 2010 For more information about the limit on investment interest, see Investment expenses in chapter 23. 2010 Expenses related to dividend income. 2010 You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). 2010 See chapter 28 for general information about deducting expenses of producing income. 2010 More information. 2010 For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the form you must file. 2010 Prev Up Next Home More Online Publications