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Irs Forms 2010

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Irs Forms 2010

Irs forms 2010 7. Irs forms 2010   Coverdell Education Savings Account (ESA) Table of Contents Introduction What Is a Coverdell ESAQualified Education Expenses ContributionsContribution Limits Additional Tax on Excess Contributions Rollovers and Other TransfersRollovers Changing the Designated Beneficiary Transfer Because of Divorce DistributionsTax-Free Distributions Taxable Distributions When Assets Must Be Distributed Introduction If your modified adjusted gross income (MAGI) is less than $110,000 ($220,000 if filing a joint return), you may be able to establish a Coverdell ESA to finance the qualified education expenses of a designated beneficiary. Irs forms 2010 For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return. Irs forms 2010 There is no limit on the number of separate Coverdell ESAs that can be established for a designated beneficiary. Irs forms 2010 However, total contributions for the beneficiary in any year cannot be more than $2,000, no matter how many accounts have been established. Irs forms 2010 See Contributions , later. Irs forms 2010 This benefit applies not only to higher education expenses, but also to elementary and secondary education expenses. Irs forms 2010 What is the tax benefit of the Coverdell ESA. Irs forms 2010   Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed. Irs forms 2010   If, for a year, distributions from an account are not more than a designated beneficiary's qualified education expenses at an eligible educational institution, the beneficiary will not owe tax on the distributions. Irs forms 2010 See Tax-Free Distributions , later. Irs forms 2010    Table 7-1 summarizes the main features of the Coverdell ESA. Irs forms 2010 Table 7-1. Irs forms 2010 Coverdell ESA at a Glance Do not rely on this table alone. Irs forms 2010 It provides only general highlights. Irs forms 2010 See the text for definitions of terms in bold type and for more complete explanations. Irs forms 2010 Question Answer What is a Coverdell ESA? A savings account that is set up to pay the qualified education expenses of a designated beneficiary. Irs forms 2010 Where can it be established? It can be opened in the United States at any bank or other IRS-approved entity that offers Coverdell ESAs. Irs forms 2010 Who can have a Coverdell ESA? Any beneficiary who is under age 18 or is a special needs beneficiary. Irs forms 2010 Who can contribute to a Coverdell ESA? Generally, any individual (including the beneficiary) whose modified adjusted gross income for the year is less than $110,000 ($220,000 in the case of a joint return). Irs forms 2010 Are distributions tax free? Yes, if the distributions are not more than the beneficiary's adjusted qualified education expenses for the year. Irs forms 2010 What Is a Coverdell ESA A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the Designated beneficiary (defined later) of the account. Irs forms 2010 When the account is established, the designated beneficiary must be under age 18 or a special needs beneficiary. Irs forms 2010 To be treated as a Coverdell ESA, the account must be designated as a Coverdell ESA when it is created. Irs forms 2010 The document creating and governing the account must be in writing and must satisfy the following requirements. Irs forms 2010 The trustee or custodian must be a bank or an entity approved by the IRS. Irs forms 2010 The document must provide that the trustee or custodian can only accept a contribution that meets all of the following conditions. Irs forms 2010 The contribution is in cash. Irs forms 2010 The contribution is made before the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Irs forms 2010 The contribution would not result in total contributions for the year (not including rollover contributions) being more than $2,000. Irs forms 2010 Money in the account cannot be invested in life insurance contracts. Irs forms 2010 Money in the account cannot be combined with other property except in a common trust fund or common investment fund. Irs forms 2010 The balance in the account generally must be distributed within 30 days after the earlier of the following events. Irs forms 2010 The beneficiary reaches age 30, unless the beneficiary is a special needs beneficiary. Irs forms 2010 The beneficiary's death. Irs forms 2010 Qualified Education Expenses Generally, these are expenses required for the enrollment or attendance of the designated beneficiary at an eligible educational institution. Irs forms 2010 For purposes of Coverdell ESAs, the expenses can be either qualified higher education expenses or qualified elementary and secondary education expenses. Irs forms 2010 Designated beneficiary. Irs forms 2010   This is the individual named in the document creating the trust or custodial account to receive the benefit of the funds in the account. Irs forms 2010 Contributions to a qualified tuition program (QTP). Irs forms 2010   A contribution to a QTP is a qualified education expense if the contribution is on behalf of the designated beneficiary of the Coverdell ESA. Irs forms 2010 In the case of a change in beneficiary, this is a qualified expense only if the new beneficiary is a family member of that designated beneficiary. Irs forms 2010 See chapter 8, Qualified Tuition Program . Irs forms 2010 Eligible Educational Institution For purposes of Coverdell ESAs, an eligible educational institution can be either an eligible postsecondary school or an eligible elementary or secondary school. Irs forms 2010 Eligible postsecondary school. Irs forms 2010   This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Irs forms 2010 S. Irs forms 2010 Department of Education. Irs forms 2010 It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Irs forms 2010 The educational institution should be able to tell you if it is an eligible educational institution. Irs forms 2010   Certain educational institutions located outside the United States also participate in the U. Irs forms 2010 S. Irs forms 2010 Department of Education's Federal Student Aid (FSA) programs. Irs forms 2010 Eligible elementary or secondary school. Irs forms 2010   This is any public, private, or religious school that provides elementary or secondary education (kindergarten through grade 12), as determined under state law. Irs forms 2010 Qualified Higher Education Expenses These are expenses related to enrollment or attendance at an eligible postsecondary school. Irs forms 2010 As shown in the following list, to be qualified, some of the expenses must be required by the school and some must be incurred by students who are enrolled at least half-time. Irs forms 2010 The following expenses must be required for enrollment or attendance of a designated beneficiary at an eligible postsecondary school. Irs forms 2010 Tuition and fees. Irs forms 2010 Books, supplies, and equipment. Irs forms 2010 Expenses for special needs services needed by a special needs beneficiary must be incurred in connection with enrollment or attendance at an eligible postsecondary school. Irs forms 2010 Expenses for room and board must be incurred by students who are enrolled at least half-time (defined below). Irs forms 2010 The expense for room and board qualifies only to the extent that it is not more than the greater of the following two amounts. Irs forms 2010 The allowance for room and board, as determined by the school, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student. Irs forms 2010 The actual amount charged if the student is residing in housing owned or operated by the school. Irs forms 2010 Half-time student. Irs forms 2010   A student is enrolled “at least half-time” if he or she is enrolled for at least half the full-time academic work load for the course of study the student is pursuing, as determined under the standards of the school where the student is enrolled. Irs forms 2010 Qualified Elementary and Secondary Education Expenses These are expenses related to enrollment or attendance at an eligible elementary or secondary school. Irs forms 2010 As shown in the following list, to be qualified, some of the expenses must be required or provided by the school. Irs forms 2010 There are special rules for computer-related expenses. Irs forms 2010 The following expenses must be incurred by a designated beneficiary in connection with enrollment or attendance at an eligible elementary or secondary school. Irs forms 2010 Tuition and fees. Irs forms 2010 Books, supplies, and equipment. Irs forms 2010 Academic tutoring. Irs forms 2010 Special needs services for a special needs beneficiary. Irs forms 2010 The following expenses must be required or provided by an eligible elementary or secondary school in connection with attendance or enrollment at the school. Irs forms 2010 Room and board. Irs forms 2010 Uniforms. Irs forms 2010 Transportation. Irs forms 2010 Supplementary items and services (including extended day programs). Irs forms 2010 The purchase of computer technology, equipment, or Internet access and related services is a qualified elementary and secondary education expense if it is to be used by the beneficiary and the beneficiary's family during any of the years the beneficiary is in elementary or secondary school. Irs forms 2010 (This does not include expenses for computer software designed for sports, games, or hobbies unless the software is predominantly educational in nature. Irs forms 2010 ) Contributions Any individual (including the designated beneficiary) can contribute to a Coverdell ESA if the individual's MAGI (defined later under Contribution Limits ) for the year is less than $110,000. Irs forms 2010 For individuals filing joint returns, that amount is $220,000. Irs forms 2010 Organizations, such as corporations and trusts, can also contribute to Coverdell ESAs. Irs forms 2010 There is no requirement that an organization's income be below a certain level. Irs forms 2010 Contributions must meet all of the following requirements. Irs forms 2010 They must be in cash. Irs forms 2010 They cannot be made after the beneficiary reaches age 18, unless the beneficiary is a special needs beneficiary. Irs forms 2010 They must be made by the due date of the contributor's tax return (not including extensions). Irs forms 2010 Contributions can be made to one or several Coverdell ESAs for the same designated beneficiary provided that the total contributions are not more than the contribution limits (defined later) for a year. Irs forms 2010 Contributions can be made, without penalty, to both a Coverdell ESA and a QTP in the same year for the same beneficiary. Irs forms 2010 Table 7-2 summarizes many of the features of contributing to a Coverdell ESA. Irs forms 2010 When contributions considered made. Irs forms 2010   Contributions made to a Coverdell ESA for the preceding tax year are considered to have been made on the last day of the preceding year. Irs forms 2010 They must be made by the due date (not including extensions) for filing your return for the preceding year. Irs forms 2010   For example, if you make a contribution to a Coverdell ESA in February 2014, and you designate it as a contribution for 2013, you are considered to have made that contribution on December 31, 2013. Irs forms 2010 Contribution Limits There are two yearly limits: One on the total amount that can be contributed for each designated beneficiary in any year, and One on the amount that any individual can contribute for any one designated beneficiary for a year. Irs forms 2010 Limit for each designated beneficiary. Irs forms 2010   For 2013, the total of all contributions to all Coverdell ESAs set up for the benefit of any one designated beneficiary cannot be more than $2,000. Irs forms 2010 This includes contributions (other than rollovers) to all the beneficiary's Coverdell ESAs from all sources. Irs forms 2010 Rollovers are discussed under Rollovers and Other Transfers , later. Irs forms 2010 Example. Irs forms 2010 When Maria Luna was born in 2012, three separate Coverdell ESAs were set up for her, one by her parents, one by her grandfather, and one by her aunt. Irs forms 2010 In 2013, the total of all contributions to Maria's three Coverdell ESAs cannot be more than $2,000. Irs forms 2010 For example, if her grandfather contributed $2,000 to one of her Coverdell ESAs, no one else could contribute to any of her three accounts. Irs forms 2010 Or, if her parents contributed $1,000 and her aunt $600, her grandfather or someone else could contribute no more than $400. Irs forms 2010 These contributions could be put into any of Maria's Coverdell ESA accounts. Irs forms 2010 Limit for each contributor. Irs forms 2010   Generally, you can contribute up to $2,000 for each designated beneficiary for 2013. Irs forms 2010 This is the most you can contribute for the benefit of any one beneficiary for the year, regardless of the number of Coverdell ESAs set up for the beneficiary. Irs forms 2010 Example. Irs forms 2010 The facts are the same as in the previous example except that Maria Luna's older brother, Edgar, also has a Coverdell ESA. Irs forms 2010 If their grandfather contributed $2,000 to Maria's Coverdell ESA in 2013, he could also contribute $2,000 to Edgar's Coverdell ESA. Irs forms 2010 Reduced limit. Irs forms 2010   Your contribution limit may be reduced. Irs forms 2010 If your MAGI (defined on this page) is between $95,000 and $110,000 (between $190,000 and $220,000 if filing a joint return), the $2,000 limit for each designated beneficiary is gradually reduced (see Figuring the limit , later). Irs forms 2010 If your MAGI is $110,000 or more ($220,000 or more if filing a joint return), you cannot contribute to anyone's Coverdell ESA. Irs forms 2010 Table 7-2. Irs forms 2010 Coverdell ESA Contributions at a Glance Do not rely on this table alone. Irs forms 2010 It provides only general highlights. Irs forms 2010 See the text for more complete explanations. Irs forms 2010 Question Answer Are contributions deductible? No. Irs forms 2010 What is the annual contribution limit per designated beneficiary? $2,000 for each designated beneficiary. Irs forms 2010 What if more than one Coverdell ESA has been opened for the same designated beneficiary? The annual contribution limit is $2,000 for each beneficiary, no matter how many Coverdell ESAs are set up for that beneficiary. Irs forms 2010 What if more than one individual makes contributions for the same designated beneficiary? The annual contribution limit is $2,000 per beneficiary, no matter how many individuals contribute. Irs forms 2010 Can contributions other than cash be made to a Coverdell ESA? No. Irs forms 2010 When must contributions stop? No contributions can be made to a beneficiary's Coverdell ESA after he or she reaches age 18, unless the beneficiary is a special needs beneficiary. Irs forms 2010 Modified adjusted gross income (MAGI). Irs forms 2010   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return. Irs forms 2010 MAGI when using Form 1040A. Irs forms 2010   If you file Form 1040A, your MAGI is the AGI on line 22 of that form. Irs forms 2010 MAGI when using Form 1040. Irs forms 2010   If you file Form 1040, your MAGI is the AGI on line 38 of that form, modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Irs forms 2010 MAGI when using Form 1040NR. Irs forms 2010   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form. Irs forms 2010 MAGI when using Form 1040NR-EZ. Irs forms 2010   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form. Irs forms 2010   If you have any of these adjustments, you can use Worksheet 7-1. Irs forms 2010 MAGI for a Coverdell ESA , later, to figure your MAGI for Form 1040. Irs forms 2010 Worksheet 7-1. Irs forms 2010 MAGI for a Coverdell ESA 1. Irs forms 2010 Enter your adjusted gross income  (Form 1040, line 38)   1. Irs forms 2010   2. Irs forms 2010 Enter your foreign earned income exclusion and/or housing exclusion (Form 2555, line 45, or Form 2555-EZ, line 18)   2. Irs forms 2010       3. Irs forms 2010 Enter your foreign housing deduction (Form 2555, line 50)   3. Irs forms 2010         4. Irs forms 2010 Enter the amount of income from Puerto Rico you are excluding   4. Irs forms 2010       5. Irs forms 2010 Enter the amount of income from American Samoa you are excluding (Form 4563, line 15)   5. Irs forms 2010       6. Irs forms 2010 Add lines 2, 3, 4, and 5   6. Irs forms 2010   7. Irs forms 2010 Add lines 1 and 6. Irs forms 2010 This is your  modified adjusted gross income   7. Irs forms 2010   Figuring the limit. Irs forms 2010    To figure the limit on the amount you can contribute for each designated beneficiary, multiply $2,000 by a fraction. Irs forms 2010 The numerator (top number) is your MAGI minus $95,000 ($190,000 if filing a joint return). Irs forms 2010 The denominator (bottom number) is $15,000 ($30,000 if filing a joint return). Irs forms 2010 Subtract the result from $2,000. Irs forms 2010 This is the amount you can contribute for each beneficiary. Irs forms 2010 You can use Worksheet 7-2. Irs forms 2010 Coverdell ESA Contribution Limit to figure the limit on contributions. Irs forms 2010    Worksheet 7-2. Irs forms 2010 Coverdell ESA Contribution Limit 1. Irs forms 2010 Maximum contribution   1. Irs forms 2010 $2,000 2. Irs forms 2010 Enter your modified adjusted gross income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Irs forms 2010   3. Irs forms 2010 Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Irs forms 2010   4. Irs forms 2010 Subtract line 3 from line 2. Irs forms 2010 If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Irs forms 2010   5. Irs forms 2010 Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Irs forms 2010     Note. Irs forms 2010 If the amount on line 4 is greater than or equal to the amount on line 5, stop here. Irs forms 2010 You are not allowed to contribute to a Coverdell ESA for 2013. Irs forms 2010       6. Irs forms 2010 Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Irs forms 2010 . Irs forms 2010 7. Irs forms 2010 Multiply line 1 by line 6   7. Irs forms 2010   8. Irs forms 2010 Subtract line 7 from line 1   8. Irs forms 2010   Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Irs forms 2010 Example. Irs forms 2010 Paul, who is single, had a MAGI of $96,500 for 2013. Irs forms 2010 Paul can contribute up to $1,800 in 2013 for each beneficiary, as shown in the illustrated Worksheet 7-2, Coverdell ESA Contribution Limit–Illustrated. Irs forms 2010 Worksheet 7-2. Irs forms 2010 Coverdell ESA Contribution Limit—Illustrated 1. Irs forms 2010 Maximum contribution   1. Irs forms 2010 $2,000 2. Irs forms 2010 Enter your modified adjusted gross  income (MAGI) for purposes of figuring the contribution limit to a Coverdell ESA (see definition or Worksheet 7-1, earlier)   2. Irs forms 2010 96,500 3. Irs forms 2010 Enter $190,000 if married filing jointly; $95,000 for all other filers   3. Irs forms 2010 95,000 4. Irs forms 2010 Subtract line 3 from line 2. Irs forms 2010 If zero or less, enter -0- on line 4, skip lines 5 through 7, and enter $2,000 on line 8   4. Irs forms 2010 1,500 5. Irs forms 2010 Enter $30,000 if married filing jointly; $15,000 for all other filers   5. Irs forms 2010 15,000   Note. Irs forms 2010 If the amount on line 4 is greater than or equal to the amount on line 5,  stop here. Irs forms 2010 You are not allowed to  contribute to a Coverdell ESA for 2013. Irs forms 2010       6. Irs forms 2010 Divide line 4 by line 5 and enter the result as a decimal (rounded to at least 3 places)   6. Irs forms 2010 . Irs forms 2010 100 7. Irs forms 2010 Multiply line 1 by line 6   7. Irs forms 2010 200 8. Irs forms 2010 Subtract line 7 from line 1   8. Irs forms 2010 1,800 Note: The total Coverdell ESA contributions from all sources for the designated beneficiary during the tax year may not exceed $2,000. Irs forms 2010 Additional Tax on Excess Contributions The beneficiary must pay a 6% excise tax each year on excess contributions that are in a Coverdell ESA at the end of the year. Irs forms 2010 Excess contributions are the total of the following two amounts. Irs forms 2010 Contributions to any designated beneficiary's Coverdell ESA for the year that are more than $2,000 (or, if less, the total of each contributor's limit for the year, as discussed earlier). Irs forms 2010 Excess contributions for the preceding year, reduced by the total of the following two amounts: Distributions (other than those rolled over as discussed later) during the year, and The contribution limit for the current year minus the amount contributed for the current year. Irs forms 2010 Exceptions. Irs forms 2010   The excise tax does not apply if excess contributions made during 2013 (and any earnings on them) are distributed before the first day of the sixth month of the following tax year (June 1, 2014, for a calendar year taxpayer). Irs forms 2010   However, you must include the distributed earnings in gross income for the year in which the excess contribution was made. Irs forms 2010 You should receive Form 1099-Q, Payments From Qualified Education Programs, from each institution from which excess contributions were distributed. Irs forms 2010 Box 2 of that form will show the amount of earnings on your excess contributions. Irs forms 2010 Code “2” or “3” entered in the blank box below boxes 5 and 6 indicate the year in which the earnings are taxable. Irs forms 2010 See Instructions for Recipient on the back of copy B of your Form 1099-Q. Irs forms 2010 Enter the amount of earnings on line 21 of Form 1040 (or Form 1040NR) for the applicable tax year. Irs forms 2010 For more information, see Taxable Distributions , later. Irs forms 2010   The excise tax does not apply to any rollover contribution. Irs forms 2010 Note. Irs forms 2010 Contributions made in one year for the preceding tax year are considered to have been made on the last day of the preceding year. Irs forms 2010 Example. Irs forms 2010 In 2012, Greta's parents and grandparents contributed a total of $2,300 to Greta's Coverdell ESA— an excess contribution of $300. Irs forms 2010 Because Greta did not withdraw the excess before June 1, 2013, she had to pay an additional tax of $18 (6% × $300) when she filed her 2012 tax return. Irs forms 2010 In 2013, excess contributions of $500 were made to Greta's account, however, she withdrew $250 from that account to use for qualified education expenses. Irs forms 2010 Using the steps shown earlier under Additional Tax on Excess Contributions , Greta figures the excess contribution in her account at the end of 2013 as follows. Irs forms 2010 (1)   $500 excess contributions made in 2013     + (2)   $300 excess contributions in ESA at end of 2012     − (2a)   $250 distribution during 2013         $550 excess at end of 2013   × 6%=$33           If Greta limits 2014 contributions to $1,450 ($2,000 maximum allowed − $550 excess contributions from 2013), she will not owe any additional tax in 2014 for excess contributions. Irs forms 2010 Figuring and reporting the additional tax. Irs forms 2010   You figure this excise tax in Part V of Form 5329. Irs forms 2010 Report the additional tax on Form 1040, line 58 (or Form 1040NR, line 56). Irs forms 2010 Rollovers and Other Transfers Assets can be rolled over from one Coverdell ESA to another or the designated beneficiary can be changed. Irs forms 2010 The beneficiary's interest can be transferred to a spouse or former spouse because of divorce. Irs forms 2010 Rollovers Any amount distributed from a Coverdell ESA is not taxable if it is rolled over to another Coverdell ESA for the benefit of the same beneficiary or a member of the beneficiary's family (including the beneficiary's spouse) who is under age 30. Irs forms 2010 This age limitation does not apply if the new beneficiary is a special needs beneficiary. Irs forms 2010 An amount is rolled over if it is paid to another Coverdell ESA within 60 days after the date of the distribution. Irs forms 2010 Do not report qualifying rollovers (those that meet the above criteria) anywhere on Form 1040 or 1040NR. Irs forms 2010 These are not taxable distributions. Irs forms 2010 Members of the beneficiary's family. Irs forms 2010   For these purposes, the beneficiary's family includes the beneficiary's spouse and the following other relatives of the beneficiary. Irs forms 2010 Son, daughter, stepchild, foster child, adopted child, or a descendant of any of them. Irs forms 2010 Brother, sister, stepbrother, or stepsister. Irs forms 2010 Father or mother or ancestor of either. Irs forms 2010 Stepfather or stepmother. Irs forms 2010 Son or daughter of a brother or sister. Irs forms 2010 Brother or sister of father or mother. Irs forms 2010 Son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law. Irs forms 2010 The spouse of any individual listed above. Irs forms 2010 First cousin. Irs forms 2010 Example. Irs forms 2010 When Aaron graduated from college last year he had $5,000 left in his Coverdell ESA. Irs forms 2010 He wanted to give this money to his younger sister, who was still in high school. Irs forms 2010 In order to avoid paying tax on the distribution of the amount remaining in his account, Aaron contributed the same amount to his sister's Coverdell ESA within 60 days of the distribution. Irs forms 2010 Only one rollover per Coverdell ESA is allowed during the 12-month period ending on the date of the payment or distribution. Irs forms 2010 This rule does not apply to the rollover of a military death gratuity or payment from Servicemembers' Group Life Insurance (SGLI). Irs forms 2010 Military death gratuity. Irs forms 2010   If you received a military death gratuity or a payment from Servicemembers' Group Life Insurance (SGLI), you may roll over all or part of the amount received to one or more Coverdell ESAs for the benefit of members of the beneficiary's family (see Members of the beneficiary's family , earlier). Irs forms 2010 Such payments are made to an eligible survivor upon the death of a member of the armed forces. Irs forms 2010 The contribution to a Coverdell ESA from survivor benefits received cannot be made later than 1 year after the date on which you receive the gratuity or SGLI payment. Irs forms 2010   This rollover contribution is not subject to (but is in addition to) the contribution limits discussed earlier under Contribution Limits . Irs forms 2010 The amount you roll over cannot exceed the total survivor benefits you received, reduced by contributions from these benefits to a Roth IRA or other Coverdell ESAs. Irs forms 2010   The amount contributed from the survivor benefits is treated as part of your basis (cost) in the Coverdell ESA, and will not be taxed when distributed. Irs forms 2010 See Distributions , later. Irs forms 2010 The limit of one rollover per Coverdell ESA during a 12-month period does not apply to a military death gratuity or SGLI payment. Irs forms 2010 Changing the Designated Beneficiary The designated beneficiary can be changed. Irs forms 2010 See Members of the beneficiary's family , earlier. Irs forms 2010 There are no tax consequences if, at the time of the change, the new beneficiary is under age 30 or is a special needs beneficiary. Irs forms 2010 Example. Irs forms 2010 Assume the same situation for Aaron as in the last example (see Rollovers , earlier). Irs forms 2010 Instead of closing his Coverdell ESA and paying the distribution into his sister's Coverdell ESA, Aaron could have instructed the trustee of his account to simply change the name of the beneficiary on his account to that of his sister. Irs forms 2010 Transfer Because of Divorce If a spouse or former spouse receives a Coverdell ESA under a divorce or separation instrument, it is not a taxable transfer. Irs forms 2010 After the transfer, the spouse or former spouse treats the Coverdell ESA as his or her own. Irs forms 2010 Example. Irs forms 2010 In their divorce settlement, Peg received her ex-husband's Coverdell ESA. Irs forms 2010 In this process, the account was transferred into her name. Irs forms 2010 Peg now treats the funds in this Coverdell ESA as if she were the original owner. Irs forms 2010 Distributions The designated beneficiary of a Coverdell ESA can take a distribution at any time. Irs forms 2010 Whether the distributions are tax free depends, in part, on whether the distributions are equal to or less than the amount of Adjusted qualified education expenses (defined later) that the beneficiary has in the same tax year. Irs forms 2010 See Table 7-3, Coverdell ESA Distributions at a Glance, for highlights. Irs forms 2010 Table 7-3. Irs forms 2010 Coverdell ESA Distributions at a Glance Do not rely on this table alone. Irs forms 2010 It provides only general highlights. Irs forms 2010 See the text for definitions of terms in bold type and for more complete explanations. Irs forms 2010 Question Answer Is a distribution from a Coverdell ESA to pay for a designated beneficiary's qualified education expenses tax free? Generally, yes, to the extent the amount of the distribution is not more than the designated beneficiary's adjusted qualified education expenses. Irs forms 2010 After the designated beneficiary completes his or her education at an eligible educational institution, can amounts remaining in the Coverdell ESA be distributed? Yes. Irs forms 2010 Amounts must be distributed when the designated beneficiary reaches age 30, unless he or she is a special needs beneficiary. Irs forms 2010 Also, certain transfers to members of the beneficiary's family are permitted. Irs forms 2010 Does the designated beneficiary need to be enrolled for a minimum number of courses to take a tax-free distribution? No. Irs forms 2010 Adjusted qualified education expenses. Irs forms 2010   To determine if total distributions for the year are more than the amount of qualified education expenses, reduce total qualified education expenses by any tax-free educational assistance. Irs forms 2010 Tax-free educational assistance includes: The tax-free part of scholarships and fellowships (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Pell grants (see Pell Grants and Other Title IV Need-Based Education Grants in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), and Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Irs forms 2010 The amount you get by subtracting tax-free educational assistance from your total qualified education expenses is your adjusted qualified education expenses. Irs forms 2010 Tax-Free Distributions Generally, distributions are tax free if they are not more than the beneficiary's adjusted qualified education expenses for the year. Irs forms 2010 Do not report tax-free distributions (including qualifying rollovers) on your tax return. Irs forms 2010 Taxable Distributions A portion of the distributions is generally taxable to the beneficiary if the total distributions are more than the beneficiary's adjusted qualified education expenses for the year. Irs forms 2010 Excess distribution. Irs forms 2010   This is the part of the total distribution that is more than the beneficiary's adjusted qualified education expenses for the year. Irs forms 2010 Earnings and basis. Irs forms 2010   You will receive a Form 1099-Q for each of the Coverdell ESAs from which money was distributed in 2013. Irs forms 2010 The amount of your gross distribution will be shown in box 1. Irs forms 2010 For 2013, instead of dividing the gross distribution between your earnings (box 2) and your basis (already-taxed amount) (box 3), the payer or trustee may report the fair market value (account balance) of the Coverdell ESA as of December 31, 2013. Irs forms 2010 This will be shown in the blank box below boxes 5 and 6. Irs forms 2010   The amount contributed from survivor benefits (see Military death gratuity , earlier) is treated as part of your basis and will not be taxed when distributed. Irs forms 2010 Figuring the Taxable Portion of a Distribution The taxable portion is the amount of the excess distribution that represents earnings that have accumulated tax free in the account. Irs forms 2010 Figure the taxable portion for 2013 as shown in the following steps. Irs forms 2010 Multiply the total amount distributed by a fraction. Irs forms 2010 The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the value (balance) of the account at the end of 2013 plus the amount distributed during 2013. Irs forms 2010 Subtract the amount figured in (1) from the total amount distributed during 2013. Irs forms 2010 The result is the amount of earnings included in the distribution(s). Irs forms 2010 Multiply the amount of earnings figured in (2) by a fraction. Irs forms 2010 The numerator is the adjusted qualified education expenses paid during 2013 and the denominator is the total amount distributed during 2013. Irs forms 2010 Subtract the amount figured in (3) from the amount figured in (2). Irs forms 2010 The result is the amount the beneficiary must include in income. Irs forms 2010 The taxable amount must be reported on Form 1040 or Form 1040NR, line 21. Irs forms 2010 Example. Irs forms 2010 You received an $850 distribution from your Coverdell ESA, to which $1,500 had been contributed before 2013. Irs forms 2010 There were no contributions in 2013. Irs forms 2010 This is your first distribution from the account, so your basis in the account on December 31, 2012, was $1,500. Irs forms 2010 The value (balance) of your account on December 31, 2013, was $950. Irs forms 2010 You had $700 of adjusted qualified education expenses (AQEE) for the year. Irs forms 2010 Using the steps in Figuring the Taxable Portion of a Distribution , earlier, figure the taxable portion of your distribution as follows. Irs forms 2010   1. Irs forms 2010 $850 (distribution) × $1,500 basis + $0 contributions  $950 value + $850 distribution       =$708 (basis portion of distribution)     2. Irs forms 2010 $850 (distribution)−$708 (basis portion of distribution)     =$142 (earnings included in distribution)   3. Irs forms 2010 $142 (earnings) × $700 AQEE  $850 distribution           =$117 (tax-free earnings)     4. Irs forms 2010 $142 (earnings)−$117 (tax-free earnings)=$25 (taxable earnings)                 You must include $25 in income as distributed earnings not used for qualified education expenses. Irs forms 2010 Report this amount on Form 1040, line 21, listing the type and amount of income on the dotted line. Irs forms 2010 Worksheet 7-3, Coverdell ESA–Taxable Distributions and Basis , at the end of this chapter, can help you figure your adjusted qualified education expenses, how much of your distribution must be included in income, and the remaining basis in your Coverdell ESA(s). Irs forms 2010 Coordination With American Opportunity and Lifetime Learning Credits The American opportunity or lifetime learning credit can be claimed in the same year the beneficiary takes a tax-free distribution from a Coverdell ESA, as long as the same expenses are not used for both benefits. Irs forms 2010 This means the beneficiary must reduce qualified higher education expenses by tax-free educational assistance, and then further reduce them by any expenses taken into account in determining an American opportunity or lifetime learning credit. Irs forms 2010 Example. Irs forms 2010 Derek Green had $5,800 of qualified higher education expenses for 2013, his first year in college. Irs forms 2010 He paid his college expenses from the following sources. Irs forms 2010     Partial tuition scholarship (tax free) $1,500     Coverdell ESA distribution 1,000     Gift from parents 2,100     Earnings from part-time job 1,200           Of his $5,800 of qualified higher education expenses, $4,000 was tuition and related expenses that also qualified for an American opportunity credit. Irs forms 2010 Derek's parents claimed a $2,500 American opportunity credit (based on $4,000 expenses) on their tax return. Irs forms 2010 Before Derek can determine the taxable portion of his Coverdell ESA distribution, he must reduce his total qualified higher education expenses. Irs forms 2010     Total qualified higher education expenses $5,800     Minus: Tax-free educational assistance −1,500     Minus: Expenses taken into account in  figuring American opportunity credit − 4,000     Equals: Adjusted qualified higher education  expenses (AQHEE) $ 300           Since the adjusted qualified higher education expenses ($300) are less than the Coverdell ESA distribution ($1,000), part of the distribution will be taxable. Irs forms 2010 The balance in Derek's account was $1,800 on December 31, 2013. Irs forms 2010 Prior to 2013, $2,100 had been contributed to this account. Irs forms 2010 Contributions for 2013 totaled $400. Irs forms 2010 Using the four steps outlined earlier, Derek figures the taxable portion of his distribution as shown below. Irs forms 2010   1. Irs forms 2010 $1,000 (distribution) × $2,100 basis + $400 contributions  $1,800 value + $1,000 distribution           =$893 (basis portion of distribution)     2. Irs forms 2010 $1,000 (distribution)−$893 (basis portion of distribution)     = $107 (earnings included in distribution)   3. Irs forms 2010 $107 (earnings) × $300 AQHEE  $1,000 distribution       =$32 (tax-free earnings)     4. Irs forms 2010 $107 (earnings)−$32 (tax-free earnings)=$75 (taxable earnings)                 Derek must include $75 in income (Form 1040, line 21). Irs forms 2010 This is the amount of distributed earnings not used for adjusted qualified higher education expenses. Irs forms 2010 Coordination With Qualified Tuition Program (QTP) Distributions If a designated beneficiary receives distributions from both a Coverdell ESA and a QTP in the same year, and the total distribution is more than the beneficiary's adjusted qualified higher education expenses, those expenses must be allocated between the distribution from the Coverdell ESA and the distribution from the QTP before figuring how much of each distribution is taxable. Irs forms 2010 The following two examples illustrate possible allocations. Irs forms 2010 Example 1. Irs forms 2010 In 2013, Beatrice graduated from high school and began her first semester of college. Irs forms 2010 That year, she had $1,000 of qualified elementary and secondary education expenses (QESEE) for high school and $3,000 of qualified higher education expenses (QHEE) for college. Irs forms 2010 To pay these expenses, Beatrice withdrew $800 from her Coverdell ESA and $4,200 from her QTP. Irs forms 2010 No one claimed Beatrice as a dependent, nor was she eligible for an education credit. Irs forms 2010 She did not receive any tax-free educational assistance in 2013. Irs forms 2010 Beatrice must allocate her total qualified education expenses between the two distributions. Irs forms 2010 Beatrice knows that tax-free treatment will be available if she applies her $800 Coverdell ESA distribution toward her $1,000 of qualified education expenses for high school. Irs forms 2010 The qualified expenses are greater than the distribution, making the $800 Coverdell ESA distribution tax free. Irs forms 2010 Next, Beatrice matches her $4,200 QTP distribution to her $3,000 of QHEE, and finds she has an excess QTP distribution of $1,200 ($4,200 QTP − $3,000 QHEE). Irs forms 2010 She cannot use the extra $200 of high school expenses (from (1) above) against the QTP distribution because those expenses do not qualify a QTP for tax-free treatment. Irs forms 2010 Finally, Beatrice figures the taxable and tax-free portions of her QTP distribution based on her $3,000 of QHEE. Irs forms 2010 (See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program for more information. Irs forms 2010 ) Example 2. Irs forms 2010 Assume the same facts as in Example 1 , except that Beatrice withdrew $1,800 from her Coverdell ESA and $3,200 from her QTP. Irs forms 2010 In this case, she allocates her qualified education expenses as follows. Irs forms 2010 Using the same reasoning as in Example 1, Beatrice matches $1,000 of her Coverdell ESA distribution to her $1,000 of QESEE—she has $800 of her distribution remaining. Irs forms 2010 Because higher education expenses can also qualify a Coverdell ESA distribution for tax-free treatment, Beatrice allocates her $3,000 of QHEE between the remaining $800 Coverdell ESA and the $3,200 QTP distributions ($4,000 total). Irs forms 2010   $3,000 QHEE × $800 ESA distribution  $4,000 total distribution = $600 QHEE (ESA)     $3,000 QHEE × $3,200 QTP distribution  $4,000 total distribution = $2,400 QHEE (QTP)   Beatrice then figures the taxable part of her: Coverdell ESA distribution based on qualified education expenses of $1,600 ($1,000 QESEE + $600 QHEE). Irs forms 2010 See Figuring the Taxable Portion of a Distribution , earlier, in this chapter. Irs forms 2010   QTP distribution based on her $2,400 of QHEE (see Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program). Irs forms 2010 The above examples show two types of allocation between distributions from a Coverdell ESA and a QTP. Irs forms 2010 However, you do not have to allocate your expenses in the same way. Irs forms 2010 You can use any reasonable method. Irs forms 2010 Losses on Coverdell ESA Investments If you have a loss on your investment in a Coverdell ESA, you may be able to deduct the loss on your income tax return. Irs forms 2010 You can deduct the loss only when all amounts from that account have been distributed and the total distributions are less than your unrecovered basis. Irs forms 2010 Your basis is the total amount of contributions to that Coverdell ESA. Irs forms 2010 You claim the loss as a miscellaneous itemized deduction on Schedule A (Form 1040), line 23 (Schedule A (Form 1040NR), line 9), subject to the 2%-of-adjusted-gross-income limit. Irs forms 2010 If you have distributions from more than one Coverdell ESA account during a year, you must combine the information (amount of distribution, basis, etc. Irs forms 2010 ) from all such accounts in order to determine your taxable earnings for the year. Irs forms 2010 By doing this, the loss from one ESA account reduces the distributed earnings (if any) from any other ESA account. Irs forms 2010 For examples of the calculation, see Losses on QTP Investments in chapter 8, Qualified Tuition Program. Irs forms 2010 Additional Tax on Taxable Distributions Generally, if you receive a taxable distribution, you also must pay a 10% additional tax on the amount included in income. Irs forms 2010 Exceptions. Irs forms 2010   The 10% additional tax does not apply to distributions: Paid to a beneficiary (or to the estate of the designated beneficiary) on or after the death of the designated beneficiary. Irs forms 2010 Made because the designated beneficiary is disabled. Irs forms 2010 A person is considered to be disabled if he or she shows proof that he or she cannot do any substantial gainful activity because of his or her physical or mental condition. Irs forms 2010 A physician must determine that his or her condition can be expected to result in death or to be of long-continued and indefinite duration. Irs forms 2010 Included in income because the designated beneficiary received: A tax-free scholarship or fellowship (see Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Veterans' educational assistance (see Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions), Employer-provided educational assistance (see chapter 11, Employer-Provided Educational Assistance ), or Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Irs forms 2010 Made on account of the attendance of the designated beneficiary at a U. Irs forms 2010 S. Irs forms 2010 military academy (such as the USMA at West Point). Irs forms 2010 This exception applies only to the extent that the amount of the distribution does not exceed the costs of advanced education (as defined in section 2005(d)(3) of title 10 of the U. Irs forms 2010 S. Irs forms 2010 Code) attributable to such attendance. Irs forms 2010 Included in income only because the qualified education expenses were taken into account in determining the American opportunity or lifetime learning credit (see Coordination With American Opportunity and Lifetime Learning Credits , earlier). Irs forms 2010 Made before June 1, 2014, of an excess 2013 contribution (and any earnings on it). Irs forms 2010 The distributed earnings must be included in gross income for the year in which the excess contribution was made. Irs forms 2010 Exception (3) applies only to the extent the distribution is not more than the scholarship, allowance, or payment. Irs forms 2010 Figuring the additional tax. Irs forms 2010    Use Part II of Form 5329, to figure any additional tax. Irs forms 2010 Report the amount on Form 1040, line 58, or Form 1040NR, line 56. Irs forms 2010 When Assets Must Be Distributed Any assets remaining in a Coverdell ESA must be distributed when either one of the following two events occurs. Irs forms 2010 The designated beneficiary reaches age 30. Irs forms 2010 In this case, the remaining assets must be distributed within 30 days after the beneficiary reaches age 30. Irs forms 2010 However, this rule does not apply if the beneficiary is a special needs beneficiary. Irs forms 2010 The designated beneficiary dies before reaching age 30. Irs forms 2010 In this case, the remaining assets must generally be distributed within 30 days after the date of death. Irs forms 2010 Exception for Transfer to Surviving Spouse or Family Member If a Coverdell ESA is transferred to a surviving spouse or other family member as the result of the death of the designated beneficiary, the Coverdell ESA retains its status. Irs forms 2010 (“Family member” was defined earlier under Rollovers . Irs forms 2010 ) This means the spouse or other family member can treat the Coverdell ESA as his or her own and does not need to withdraw the assets until he or she reaches age 30. Irs forms 2010 This age limitation does not apply if the new beneficiary is a special needs beneficiary. Irs forms 2010 There are no tax consequences as a result of the transfer. Irs forms 2010 How To Figure the Taxable Earnings When a total distribution is made because the designated beneficiary either reached age 30 or died, the earnings that accumulated tax free in the account must be included in taxable income. Irs forms 2010 You determine these earnings as shown in the following two steps. Irs forms 2010 Multiply the amount distributed by a fraction. Irs forms 2010 The numerator is the basis (contributions not previously distributed) at the end of 2012 plus total contributions for 2013 and the denominator is the balance in the account at the end of 2013 plus the amount distributed during 2013. Irs forms 2010 Subtract the amount figured in (1) from the total amount distributed during 2013. Irs forms 2010 The result is the amount of earnings included in the distribution. Irs forms 2010 For an example, see steps (1) and (2) of the Example under Figuring the Taxable Portion of a Distribution, earlier. Irs forms 2010 The beneficiary or other person receiving the distribution must report this amount on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line. Irs forms 2010 Worksheet 7-3 Instructions. Irs forms 2010 Coverdell ESA—Taxable Distributions and Basis Line G. Irs forms 2010 Enter the total distributions received from all Coverdell ESAs during 2013. Irs forms 2010 Do not include amounts rolled over to another ESA within 60 days (only one rollover is allowed during any 12-month period). Irs forms 2010 Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year for which the contributions were made. Irs forms 2010 Line 2. Irs forms 2010 Your basis (amount already taxed) in this Coverdell ESA as of December 31, 2012, is the total of:   •All contributions to this Coverdell ESA before 2013 •Minus the tax-free portion of any distributions from this Coverdell ESA before 2013. Irs forms 2010   If your last distribution from this Coverdell ESA was before 2013, you must start with the basis in your account as of the end of the last year in which you took a distribution. Irs forms 2010 For years before 2002, you can find that amount on the last line of the worksheet in the Instructions for Form 8606, Nondeductible IRAs, that you completed for that year. Irs forms 2010 For years after 2001, you can find that amount by using the ending basis from the worksheet in Publication 970 for that year. Irs forms 2010 You can determine your basis in this Coverdell ESA as of December 31, 2012, by adding to the basis as of the end of that year any contributions made to that account after the year of the distribution and before 2013. Irs forms 2010 Line 4. Irs forms 2010 Enter the total distributions received from this Coverdell ESA in 2013. Irs forms 2010 Do not include amounts rolled over to another Coverdell ESA within 60 days (only one rollover is allowed during any 12-month period). Irs forms 2010   Also, do not include excess contributions that were distributed with the related earnings (or less any loss) before the first day of the sixth month of the tax year following the year of the contributions. Irs forms 2010 Line 7. Irs forms 2010 Enter the total value of this Coverdell ESA as of December 31, 2013, plus any outstanding rollovers contributed to the account after 2012, but before the end of the 60-day rollover period. Irs forms 2010 A statement should be sent to you by January 31, 2014, for this Coverdell ESA showing the value on December 31, 2013. Irs forms 2010   A rollover is a tax-free withdrawal from one Coverdell ESA that is contributed to another Coverdell ESA. Irs forms 2010 An outstanding rollover is any amount withdrawn within 60 days before the end of 2013 (November 2 through December 31) that was rolled over after December 31, 2013, but within the 60-day rollover period. Irs forms 2010 Worksheet 7-3. Irs forms 2010 Coverdell ESA—Taxable Distributions and Basis How to complete this worksheet. Irs forms 2010 • • • Complete Part I, lines A through H, on only one worksheet. Irs forms 2010  Complete a separate Part II, lines 1 through 15, for each of your Coverdell ESAs. Irs forms 2010  Complete Part III, the Summary (line 16), on only one worksheet. Irs forms 2010 Part I. Irs forms 2010 Qualified Education Expenses (Complete for total expenses)       A. Irs forms 2010 Enter your total qualified education expenses for 2013   A. Irs forms 2010   B. Irs forms 2010 Enter those qualified education expenses paid for with tax-free educational assistance (for example, tax-free scholarships, veterans' educational benefits, Pell grants, employer-provided educational assistance)   B. Irs forms 2010         C. Irs forms 2010 Enter those qualified higher education expenses deducted on Schedule C or C-EZ (Form 1040). Irs forms 2010 Schedule F (Form 1040), or as a miscellaneous itemized deduction on Schedule A (Form 1040 or 1040NR)   C. Irs forms 2010         D. Irs forms 2010 Enter those qualified higher education expenses on which  an American opportunity or lifetime learning credit was based   D. Irs forms 2010         E. Irs forms 2010 Add lines B, C, and D   D. Irs forms 2010   F. Irs forms 2010 Subtract line E from line A. Irs forms 2010 This is your adjusted qualified education expense for 2013   E. Irs forms 2010   G. Irs forms 2010 Enter your total distributions from all Coverdell ESAs during 2013. Irs forms 2010 Do not include rollovers  or the return of excess contributions (see instructions)   F. Irs forms 2010   H. Irs forms 2010 Divide line F by line G. Irs forms 2010 Enter the result as a decimal (rounded to at least 3 places). Irs forms 2010 If the  result is 1. Irs forms 2010 000 or more, enter 1. Irs forms 2010 000   G. Irs forms 2010 . Irs forms 2010 Part II. Irs forms 2010 Taxable Distributions and Basis (Complete separately for each account) 1. Irs forms 2010 Enter the amount contributed to this Coverdell ESA for 2013, including contributions made for 2013 from January 1, 2014, through April 15, 2014. Irs forms 2010 Do not include rollovers or the return of excess contributions   1. Irs forms 2010   2. Irs forms 2010 Enter your basis in this Coverdell ESA as of December 31, 2012 (see instructions)   2. Irs forms 2010   3. Irs forms 2010 Add lines 1 and 2   3. Irs forms 2010   4. Irs forms 2010 Enter the total distributions from this Coverdell ESA during 2013. Irs forms 2010 Do not include rollovers  or the return of excess contributions (see instructions)   4. Irs forms 2010   5. Irs forms 2010 Multiply line 4 by line H. Irs forms 2010 This is the amount of adjusted qualified  education expense attributable to this Coverdell ESA   5. Irs forms 2010         6. Irs forms 2010 Subtract line 5 from line 4   6. Irs forms 2010         7. Irs forms 2010 Enter the total value of this Coverdell ESA as of December 31, 2013,  plus any outstanding rollovers (see instructions)   7. Irs forms 2010         8. Irs forms 2010 Add lines 4 and 7   8. Irs forms 2010         9. Irs forms 2010 Divide line 3 by line 8. Irs forms 2010 Enter the result as a decimal (rounded to  at least 3 places). Irs forms 2010 If the result is 1. Irs forms 2010 000 or more, enter 1. Irs forms 2010 000   9. Irs forms 2010 . Irs forms 2010       10. Irs forms 2010 Multiply line 4 by line 9. Irs forms 2010 This is the amount of basis allocated to your  distributions, and is tax free   10. Irs forms 2010     Note. Irs forms 2010 If line 6 is zero, skip lines 11 through 13, enter -0- on line 14, and go to line 15. Irs forms 2010       11. Irs forms 2010 Subtract line 10 from line 4   11. Irs forms 2010   12. Irs forms 2010 Divide line 5 by line 4. Irs forms 2010 Enter the result as a decimal (rounded to  at least 3 places). Irs forms 2010 If the result is 1. Irs forms 2010 000 or more, enter 1. Irs forms 2010 000   12. Irs forms 2010 . Irs forms 2010       13. Irs forms 2010 Multiply line 11 by line 12. Irs forms 2010 This is the amount of qualified education  expenses allocated to your distributions, and is tax free   13. Irs forms 2010   14. Irs forms 2010 Subtract line 13 from line 11. Irs forms 2010 This is the portion of the distributions from this  Coverdell ESA in 2013 that you must include in income   14. Irs forms 2010   15. Irs forms 2010 Subtract line 10 from line 3. Irs forms 2010 This is your basis in this Coverdell ESA as of December 31, 2013   15. Irs forms 2010   Part III. Irs forms 2010 Summary (Complete only once)       16. Irs forms 2010 Taxable amount. Irs forms 2010 Add together all amounts on line 14 for all your Coverdell ESAs. Irs forms 2010 Enter here  and include on Form 1040, line 21, or Form 1040NR, line 21, listing the type and amount of income on the dotted line   16. Irs forms 2010   Prev  Up  Next   Home   More Online Publications
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Irs forms 2010 8. Irs forms 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. Irs forms 2010 Reporting tax withheld. Irs forms 2010 Nominees. Irs forms 2010 Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. Irs forms 2010 Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. Irs forms 2010 Alternative minimum tax treatment. Irs forms 2010 How To Report Dividend IncomeInvestment interest deducted. Irs forms 2010 Reminder Foreign-source income. Irs forms 2010  If you are a U. Irs forms 2010 S. Irs forms 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. Irs forms 2010 S. Irs forms 2010 law. Irs forms 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. Irs forms 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. Irs forms 2010 This chapter also explains how to report dividend income on your tax return. Irs forms 2010 Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. Irs forms 2010 You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. Irs forms 2010 However, some amounts you receive that are called dividends are actually interest income. Irs forms 2010 (See Dividends that are actually interest under Taxable Interest in chapter 7. Irs forms 2010 ) Most distributions are paid in cash (or check). Irs forms 2010 However, distributions can consist of more stock, stock rights, other property, or services. Irs forms 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. Irs forms 2010 Tax on unearned income of certain children. Irs forms 2010   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Irs forms 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. Irs forms 2010 If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Irs forms 2010    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Irs forms 2010 Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Irs forms 2010   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Irs forms 2010 Beneficiary of an estate or trust. Irs forms 2010    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. Irs forms 2010 You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Irs forms 2010 , from the fiduciary. Irs forms 2010 Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Irs forms 2010 Social security number (SSN) or individual taxpayer identification number (ITIN). Irs forms 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. Irs forms 2010 This includes payers of dividends. Irs forms 2010 If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. Irs forms 2010 For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Irs forms 2010 Backup withholding. Irs forms 2010   Your dividend income is generally not subject to regular withholding. Irs forms 2010 However, it may be subject to backup withholding to ensure that income tax is collected on the income. Irs forms 2010 Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Irs forms 2010   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Irs forms 2010 For more information, see Backup Withholding in chapter 4. Irs forms 2010 Stock certificate in two or more names. Irs forms 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. Irs forms 2010 Form 1099-DIV. Irs forms 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. Irs forms 2010 Keep this form with your records. Irs forms 2010 You do not have to attach it to your tax return. Irs forms 2010 Dividends not reported on Form 1099-DIV. Irs forms 2010   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. Irs forms 2010 For example, you may receive distributive shares of dividends from partnerships or S corporations. Irs forms 2010 These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Irs forms 2010 , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Irs forms 2010 Reporting tax withheld. Irs forms 2010   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. Irs forms 2010 Nominees. Irs forms 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. Irs forms 2010 Form 1099-MISC. Irs forms 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. Irs forms 2010 See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. Irs forms 2010 Incorrect amount shown on a Form 1099. Irs forms 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. Irs forms 2010 The new Form 1099 you receive will be marked “Corrected. Irs forms 2010 ” Dividends on stock sold. Irs forms 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. Irs forms 2010 Dividends received in January. Irs forms 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. Irs forms 2010 You report the dividend in the year it was declared. Irs forms 2010 Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. Irs forms 2010 They are paid out of earnings and profits and are ordinary income to you. Irs forms 2010 This means they are not capital gains. Irs forms 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. Irs forms 2010 Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. Irs forms 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. Irs forms 2010 They should be shown in box 1b of the Form 1099-DIV you receive. Irs forms 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. Irs forms 2010 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. Irs forms 2010 6%. Irs forms 2010 20% on any amount that otherwise would be taxed at a 39. Irs forms 2010 6% rate. Irs forms 2010 To qualify for the maximum rate, all of the following requirements must be met. Irs forms 2010 The dividends must have been paid by a U. Irs forms 2010 S. Irs forms 2010 corporation or a qualified foreign corporation. Irs forms 2010 (See Qualified foreign corporation , later. Irs forms 2010 ) The dividends are not of the type listed later under Dividends that are not qualified dividends . Irs forms 2010 You meet the holding period (discussed next). Irs forms 2010 Holding period. Irs forms 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. Irs forms 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. Irs forms 2010 Instead, the seller will get the dividend. Irs forms 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. Irs forms 2010 See the examples later. Irs forms 2010 Exception for preferred stock. Irs forms 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. Irs forms 2010 If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. Irs forms 2010 Example 1. Irs forms 2010 You bought 5,000 shares of XYZ Corp. Irs forms 2010 common stock on July 9, 2013. Irs forms 2010 XYZ Corp. Irs forms 2010 paid a cash dividend of 10 cents per share. Irs forms 2010 The ex-dividend date was July 16, 2013. Irs forms 2010 Your Form 1099-DIV from XYZ Corp. Irs forms 2010 shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). Irs forms 2010 However, you sold the 5,000 shares on August 12, 2013. Irs forms 2010 You held your shares of XYZ Corp. Irs forms 2010 for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). Irs forms 2010 The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. Irs forms 2010 You have no qualified dividends from XYZ Corp. Irs forms 2010 because you held the XYZ stock for less than 61 days. Irs forms 2010 Example 2. Irs forms 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. Irs forms 2010 You held the stock for 63 days (from July 16, 2013, through September 16, 2013). Irs forms 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). Irs forms 2010 Example 3. Irs forms 2010 You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. Irs forms 2010 ABC Mutual Fund paid a cash dividend of 10 cents a share. Irs forms 2010 The ex-dividend date was July 16, 2013. Irs forms 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. Irs forms 2010 Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. Irs forms 2010 However, you sold the 10,000 shares on August 12, 2013. Irs forms 2010 You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. Irs forms 2010 Holding period reduced where risk of loss is diminished. Irs forms 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. Irs forms 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. Irs forms 2010 You were grantor (writer) of an option to buy substantially identical stock or securities. Irs forms 2010 Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. Irs forms 2010   For information about how to apply condition (3), see Regulations section 1. Irs forms 2010 246-5. Irs forms 2010 Qualified foreign corporation. Irs forms 2010   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. Irs forms 2010 The corporation is incorporated in a U. Irs forms 2010 S. Irs forms 2010 possession. Irs forms 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. Irs forms 2010 For a list of those treaties, see Table 8-1. Irs forms 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. Irs forms 2010 See Readily tradable stock , later. Irs forms 2010 Exception. Irs forms 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. Irs forms 2010 Readily tradable stock. Irs forms 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. Irs forms 2010 For a list of the exchanges that meet these requirements, see www. Irs forms 2010 sec. Irs forms 2010 gov/divisions/marketreg/mrexchanges. Irs forms 2010 shtml. Irs forms 2010 Dividends that are not qualified dividends. Irs forms 2010   The following dividends are not qualified dividends. Irs forms 2010 They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. Irs forms 2010 Capital gain distributions. Irs forms 2010 Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. Irs forms 2010 S. Irs forms 2010 building and loan associations, U. Irs forms 2010 S. Irs forms 2010 savings and loan associations, federal savings and loan associations, and similar financial institutions. Irs forms 2010 (Report these amounts as interest income. Irs forms 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. Irs forms 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. Irs forms 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. Irs forms 2010 Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Irs forms 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. Irs forms 2010 Table 8-1. Irs forms 2010 Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. Irs forms 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. Irs forms 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. Irs forms 2010 Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. Irs forms 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. Irs forms 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. Irs forms 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. Irs forms 2010 But you may be able to deduct the service charge. Irs forms 2010 See chapter 28 for more information about deducting expenses of producing income. Irs forms 2010 In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. Irs forms 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. Irs forms 2010 When figuring this amount, use the fair market value of the stock on the dividend payment date. Irs forms 2010 Money Market Funds Report amounts you receive from money market funds as dividend income. Irs forms 2010 Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. Irs forms 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). Irs forms 2010 They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. Irs forms 2010 Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. Irs forms 2010 Undistributed capital gains of mutual funds and REITs. Irs forms 2010    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. Irs forms 2010 You must treat your share of these gains as distributions, even though you did not actually receive them. Irs forms 2010 However, they are not included on Form 1099-DIV. Irs forms 2010 Instead, they are reported to you in box 1a of Form 2439. Irs forms 2010   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. Irs forms 2010   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. Irs forms 2010 You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. Irs forms 2010 Attach Copy B of Form 2439 to your return, and keep Copy C for your records. Irs forms 2010 Basis adjustment. Irs forms 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. Irs forms 2010 Additional information. Irs forms 2010   For more information on the treatment of distributions from mutual funds, see Publication 550. Irs forms 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. Irs forms 2010 You should receive a Form 1099-DIV or other statement showing the nondividend distribution. Irs forms 2010 On Form 1099-DIV, a nondividend distribution will be shown in box 3. Irs forms 2010 If you do not receive such a statement, you report the distribution as an ordinary dividend. Irs forms 2010 Basis adjustment. Irs forms 2010   A nondividend distribution reduces the basis of your stock. Irs forms 2010 It is not taxed until your basis in the stock is fully recovered. Irs forms 2010 This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. Irs forms 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. Irs forms 2010   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Irs forms 2010 Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. Irs forms 2010 See Holding Period in chapter 14. Irs forms 2010 Example. Irs forms 2010 You bought stock in 2000 for $100. Irs forms 2010 In 2003, you received a nondividend distribution of $80. Irs forms 2010 You did not include this amount in your income, but you reduced the basis of your stock to $20. Irs forms 2010 You received a nondividend distribution of $30 in 2013. Irs forms 2010 The first $20 of this amount reduced your basis to zero. Irs forms 2010 You report the other $10 as a long-term capital gain for 2013. Irs forms 2010 You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. Irs forms 2010 Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. Irs forms 2010 These distributions are, at least in part, one form of a return of capital. Irs forms 2010 They may be paid in one or more installments. Irs forms 2010 You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. Irs forms 2010 For more information on liquidating distributions, see chapter 1 of Publication 550. Irs forms 2010 Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. Irs forms 2010 Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. Irs forms 2010 Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. Irs forms 2010 Taxable stock dividends and stock rights. Irs forms 2010   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. Irs forms 2010 You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. Irs forms 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. Irs forms 2010 The distribution is in convertible preferred stock and has the same result as in (2). Irs forms 2010 The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. Irs forms 2010 The distribution is on preferred stock. Irs forms 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. Irs forms 2010 )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. Irs forms 2010 If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. Irs forms 2010 Preferred stock redeemable at a premium. Irs forms 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. Irs forms 2010 For more information, see chapter 1 of Publication 550. Irs forms 2010 Basis. Irs forms 2010   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. Irs forms 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. Irs forms 2010 Fractional shares. Irs forms 2010    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. Irs forms 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. Irs forms 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. Irs forms 2010 Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. Irs forms 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. Irs forms 2010    Report these transactions on Form 8949 with the correct box checked. Irs forms 2010   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. Irs forms 2010 Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Irs forms 2010 Example. Irs forms 2010 You own one share of common stock that you bought on January 3, 2004, for $100. Irs forms 2010 The corporation declared a common stock dividend of 5% on June 29, 2013. Irs forms 2010 The fair market value of the stock at the time the stock dividend was declared was $200. Irs forms 2010 You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. Irs forms 2010 You figure your gain or loss as follows: Fair market value of old stock $200. Irs forms 2010 00 Fair market value of stock dividend (cash received) +10. Irs forms 2010 00 Fair market value of old stock and stock dividend $210. Irs forms 2010 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. Irs forms 2010 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. Irs forms 2010 76 Total $100. Irs forms 2010 00 Cash received $10. Irs forms 2010 00 Basis (cost) of stock dividend − 4. Irs forms 2010 76 Gain $5. Irs forms 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. Irs forms 2010 Scrip dividends. Irs forms 2010   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. Irs forms 2010 The certificate is generally nontaxable when you receive it. Irs forms 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. Irs forms 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. Irs forms 2010 You must include its fair market value in income on the date you receive it. Irs forms 2010 Other Distributions You may receive any of the following distributions during the year. Irs forms 2010 Exempt-interest dividends. Irs forms 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. Irs forms 2010 Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Irs forms 2010 Information reporting requirement. Irs forms 2010   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. Irs forms 2010 This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. Irs forms 2010 Alternative minimum tax treatment. Irs forms 2010   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Irs forms 2010 See Alternative Minimum Tax (AMT) in chapter 30 for more information. Irs forms 2010 Dividends on insurance policies. Irs forms 2010    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. Irs forms 2010 However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. Irs forms 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. Irs forms 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. Irs forms 2010 Report any taxable distributions on insurance policies on Form 1040, line 21. Irs forms 2010 Dividends on veterans' insurance. Irs forms 2010   Dividends you receive on veterans' insurance policies are not taxable. Irs forms 2010 In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. Irs forms 2010 Patronage dividends. Irs forms 2010   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. Irs forms 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. Irs forms 2010 But you must reduce the basis (cost) of the items bought. Irs forms 2010 If the dividend is more than the adjusted basis of the assets, you must report the excess as income. Irs forms 2010   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. Irs forms 2010 Alaska Permanent Fund dividends. Irs forms 2010    Do not report these amounts as dividends. Irs forms 2010 Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. Irs forms 2010 How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. Irs forms 2010 Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. Irs forms 2010 Report qualified dividends on line 9b of Form 1040 or Form 1040A. Irs forms 2010 If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. Irs forms 2010 See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. Irs forms 2010 If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. Irs forms 2010 You cannot use Form 1040EZ if you receive any dividend income. Irs forms 2010 Form 1099-DIV. Irs forms 2010   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. Irs forms 2010 Even if you do not receive Form 1099-DIV, you must report all your dividend income. Irs forms 2010   See Form 1099-DIV for more information on how to report dividend income. Irs forms 2010 Form 1040A or 1040. Irs forms 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. Irs forms 2010 If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. Irs forms 2010   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. Irs forms 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. Irs forms 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. Irs forms 2010   Enter on line 6 the total of the amounts listed on line 5. Irs forms 2010 Also enter this total on line 9a of Form 1040A or 1040. Irs forms 2010 Qualified dividends. Irs forms 2010   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. Irs forms 2010 The amount in box 1b is already included in box 1a. Irs forms 2010 Do not add the amount in box 1b to, or substract it from, the amount in box 1a. Irs forms 2010   Do not include any of the following on line 9b. Irs forms 2010 Qualified dividends you received as a nominee. Irs forms 2010 See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. Irs forms 2010 Dividends on stock for which you did not meet the holding period. Irs forms 2010 See Holding period , earlier under Qualified Dividends. Irs forms 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. Irs forms 2010 Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Irs forms 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. Irs forms 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. Irs forms 2010 Enter qualified dividends on line 2 of the worksheet. Irs forms 2010 Investment interest deducted. Irs forms 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. Irs forms 2010 Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. Irs forms 2010 This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. Irs forms 2010 For more information about the limit on investment interest, see Investment expenses in chapter 23. Irs forms 2010 Expenses related to dividend income. Irs forms 2010   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). Irs forms 2010 See chapter 28 for general information about deducting expenses of producing income. Irs forms 2010 More information. Irs forms 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. Irs forms 2010 Prev  Up  Next   Home   More Online Publications