4.1 Reporting Dividends and Mutual-Fund Distributions
Dividends paid to you out of a corporation’s earnings and profits are taxable as ordinary income. The corporation will report dividends on Form 1099-DIV (or equivalent statement). Mutual-fund dividends and distributions are also reported on Form 1099-DIV (or similar form). Corporate dividends and mutual-fund distributions of $10 or more are reported on Form 1099-DIV (or equivalent) whether you receive them in cash or they have been reinvested at your request.
Form 1099-DIV.
Form 1099-DIV for 2012 gives you a breakdown of the dividends and distributions paid to you during the year. A mutual-fund or real estate investment trust (REIT) dividend paid to you in January 2013 will also be reported to you on the 2012 Form 1099-DIV if it was declared and was payable in October, November, or December of 2012. The company or fund may send a statement that is similar to Form 1099-DIV. You do not have to attach the Form 1099-DIV (or similar statement) to your tax return.
Box 1a. Ordinary dividends taxed to you are shown in Box 1. These are the most common type of distribution, payable out of a corporation’s earnings and profits. Your share of a mutual fund’s ordinary dividends is also shown on Form 1099-DIV; short-term capital gain distributions are included in the Box 1a total.
Box 1b. Part of the Box 1a amount may be qualified dividends. Qualified dividends reported in Box 1b are generally taxed at the same favorable rates (zero or 15%) as net capital gains. See 4.2 for further details on qualified dividends.
Boxes 2a–2d. Capital gain distributions (long term) from a mutual fund (or real estate investment trust) are shown in Box 2a. Box 2b shows the portion of the Box 2a amount, if any, that is unrecaptured Section 1250 gain from the sale of depreciable real estate. Box 2c shows the part of Box 2a that is Section 1202 gain from small business stock eligible for a 50% or 60% exclusion (5.8). Box 2d shows the amount from Box 2a that is 28% rate gain from the sale of collectibles. If any amount is reported in Box 2b, 2c, or 2d, you must file Schedule D with Form 1040 (5.3).
Box 3. Nontaxable distributions that are a return of your investment are shown in Box 3; see “Return of capital distributions” below.
Box 4. If you did not give your taxpayer identification number to the payer, backup withholding at a 28% rate(26.11)is shown in Box 4.
Box 5. Your share of expenses from a non–publicly offered mutual fund is shown in Box 5 and may be deductible as a miscellaneous itemized deduction subject to the 2% floor (19.15). This amount is included in Box 1a.
Boxes 6 and 7. The foreign tax shown in Box 6 (imposed by the country shown in Box 7) may be claimed as a tax credit on Form 1116 or as an itemized deduction on Schedule A (36.14).
Boxes 8 and 9. Cash and noncash liquidation distributions are shown in these boxes.
Filing Instruction
Nominee distribution—joint accounts.
If you receive dividends on stock held as a nominee for someone else, or you receive a Form 1099-DIV that includes dividends belonging to another person, such as a joint owner of the account, you are considered to be a “nominee recipient.” If the other owner is someone other than your spouse, you should file a separate Form 1099-DIV showing you as the payer and the other owner as the recipient of the allocable income. Give the owner a copy of Form 1099-DIV by January 31, 2013, so the dividends can be reported on his or her 2012 return. File the Form 1099-DIV, together with a Form 1096 (“Transmittal of Information Return”), with the IRS by February 28, 2013; the deadline is April 1, 2013, if filing electronically.
On your Schedule B (Form 1040 or 1040A), you list on Line 5 the ordinary dividends reported to you on Form 1099-DIV. Several lines above Line 6, subtract the nominee distribution (the amount allocable to the other owner) from the total dividends. Thus, the nominee distribution is not included in the taxable dividends shown on Line 6 of Schedule B or Schedule 1.
Return of capital distributions.
A distribution that is not paid out of earnings is a nontaxable return of capital, that is, a partial payback of your investment. The company will report the distribution in Box 3 of Form 1099-DIV as a nontaxable distribution. You must reduce the cost basis of your stock by the nontaxable distribution. If your basis is reduced to zero by a return of capital distributions, any further distributions are taxable as capital gains, which you report on Schedule D of Form 1040. Form 1040A or Form 1040EZ may not be used.
Planning Reminder
