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Download 1040x 8. Download 1040x   Dividends and Other Distributions Table of Contents Reminder Introduction Useful Items - You may want to see: General InformationDividends not reported on Form 1099-DIV. Download 1040x Reporting tax withheld. Download 1040x Nominees. Download 1040x Ordinary DividendsQualified Dividends Dividends Used to Buy More Stock Money Market Funds Capital Gain DistributionsBasis adjustment. Download 1040x Nondividend DistributionsLiquidating Distributions Distributions of Stock and Stock Rights Other DistributionsInformation reporting requirement. Download 1040x Alternative minimum tax treatment. Download 1040x How To Report Dividend IncomeInvestment interest deducted. Download 1040x Reminder Foreign-source income. Download 1040x  If you are a U. Download 1040x S. Download 1040x 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. Download 1040x S. Download 1040x law. Download 1040x 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. Download 1040x 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. Download 1040x This chapter also explains how to report dividend income on your tax return. Download 1040x Dividends are distributions of money, stock, or other property paid to you by a corporation or by a mutual fund. Download 1040x You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. Download 1040x However, some amounts you receive that are called dividends are actually interest income. Download 1040x (See Dividends that are actually interest under Taxable Interest in chapter 7. Download 1040x ) Most distributions are paid in cash (or check). Download 1040x However, distributions can consist of more stock, stock rights, other property, or services. Download 1040x 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. Download 1040x Tax on unearned income of certain children. Download 1040x   Part of a child's 2013 unearned income may be taxed at the parent's tax rate. Download 1040x If it is, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child's tax return. Download 1040x If not, Form 8615 is not required and the child's income is taxed at his or her own tax rate. Download 1040x    Some parents can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Download 1040x Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose. Download 1040x   For more information about the tax on unearned income of children and the parents' election, see chapter 31. Download 1040x Beneficiary of an estate or trust. Download 1040x    Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income. Download 1040x You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc. Download 1040x , from the fiduciary. Download 1040x Your copy of Schedule K-1 (Form 1041) and its instructions will tell you where to report the income on your Form 1040. Download 1040x Social security number (SSN) or individual taxpayer identification number (ITIN). Download 1040x    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. Download 1040x This includes payers of dividends. Download 1040x If you do not give your SSN or ITIN to the payer of dividends, you may have to pay a penalty. Download 1040x For more information on SSNs and ITINs, see Social Security Number (SSN) in chapter 1. Download 1040x Backup withholding. Download 1040x   Your dividend income is generally not subject to regular withholding. Download 1040x However, it may be subject to backup withholding to ensure that income tax is collected on the income. Download 1040x Under backup withholding, the payer of dividends must withhold, as income tax, on the amount you are paid, applying the appropriate withholding rate. Download 1040x   Backup withholding may also be required if the IRS has determined that you underreported your interest or dividend income. Download 1040x For more information, see Backup Withholding in chapter 4. Download 1040x Stock certificate in two or more names. Download 1040x   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. Download 1040x Form 1099-DIV. Download 1040x   Most corporations and mutual funds use Form 1099-DIV, Dividends and Distributions, to show you the distributions you received from them during the year. Download 1040x Keep this form with your records. Download 1040x You do not have to attach it to your tax return. Download 1040x Dividends not reported on Form 1099-DIV. Download 1040x   Even if you do not receive Form 1099-DIV, you must still report all your taxable dividend income. Download 1040x For example, you may receive distributive shares of dividends from partnerships or S corporations. Download 1040x These dividends are reported to you on Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, etc. Download 1040x , and Schedule K-1 (Form 1120S), Shareholder's Share of Income, Deductions, Credits, etc. Download 1040x Reporting tax withheld. Download 1040x   If tax is withheld from your dividend income, the payer must give you a Form 1099-DIV that indicates the amount withheld. Download 1040x Nominees. Download 1040x   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. Download 1040x Form 1099-MISC. Download 1040x   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. Download 1040x See Reporting Substitute Payments under Short Sales in chapter 4 of Publication 550 for more information about reporting these payments. Download 1040x Incorrect amount shown on a Form 1099. Download 1040x   If you receive a Form 1099 that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. Download 1040x The new Form 1099 you receive will be marked “Corrected. Download 1040x ” Dividends on stock sold. Download 1040x   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. Download 1040x Dividends received in January. Download 1040x   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. Download 1040x You report the dividend in the year it was declared. Download 1040x Ordinary Dividends Ordinary (taxable) dividends are the most common type of distribution from a corporation or a mutual fund. Download 1040x They are paid out of earnings and profits and are ordinary income to you. Download 1040x This means they are not capital gains. Download 1040x 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. Download 1040x Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive. Download 1040x 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. Download 1040x They should be shown in box 1b of the Form 1099-DIV you receive. Download 1040x The maximum rate of tax on qualified dividends is: 0% on any amount that otherwise would be taxed at a 10% or 15% rate. Download 1040x 15% on any amount that otherwise would be taxed at rates greater than 15% but less than 39. Download 1040x 6%. Download 1040x 20% on any amount that otherwise would be taxed at a 39. Download 1040x 6% rate. Download 1040x To qualify for the maximum rate, all of the following requirements must be met. Download 1040x The dividends must have been paid by a U. Download 1040x S. Download 1040x corporation or a qualified foreign corporation. Download 1040x (See Qualified foreign corporation , later. Download 1040x ) The dividends are not of the type listed later under Dividends that are not qualified dividends . Download 1040x You meet the holding period (discussed next). Download 1040x Holding period. Download 1040x   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. Download 1040x 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. Download 1040x Instead, the seller will get the dividend. Download 1040x   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. Download 1040x See the examples later. Download 1040x Exception for preferred stock. Download 1040x   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. Download 1040x If the preferred dividends are due to periods totaling less than 367 days, the holding period in the previous paragraph applies. Download 1040x Example 1. Download 1040x You bought 5,000 shares of XYZ Corp. Download 1040x common stock on July 9, 2013. Download 1040x XYZ Corp. Download 1040x paid a cash dividend of 10 cents per share. Download 1040x The ex-dividend date was July 16, 2013. Download 1040x Your Form 1099-DIV from XYZ Corp. Download 1040x shows $500 in box 1a (ordinary dividends) and in box 1b (qualified dividends). Download 1040x However, you sold the 5,000 shares on August 12, 2013. Download 1040x You held your shares of XYZ Corp. Download 1040x for only 34 days of the 121-day period (from July 10, 2013, through August 12, 2013). Download 1040x The 121-day period began on May 17, 2013 (60 days before the ex-dividend date), and ended on September 14, 2013. Download 1040x You have no qualified dividends from XYZ Corp. Download 1040x because you held the XYZ stock for less than 61 days. Download 1040x Example 2. Download 1040x 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. Download 1040x You held the stock for 63 days (from July 16, 2013, through September 16, 2013). Download 1040x 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). Download 1040x Example 3. Download 1040x You bought 10,000 shares of ABC Mutual Fund common stock on July 9, 2013. Download 1040x ABC Mutual Fund paid a cash dividend of 10 cents a share. Download 1040x The ex-dividend date was July 16, 2013. Download 1040x The ABC Mutual Fund advises you that the portion of the dividend eligible to be treated as qualified dividends equals 2 cents per share. Download 1040x Your Form 1099-DIV from ABC Mutual Fund shows total ordinary dividends of $1,000 and qualified dividends of $200. Download 1040x However, you sold the 10,000 shares on August 12, 2013. Download 1040x You have no qualified dividends from ABC Mutual Fund because you held the ABC Mutual Fund stock for less than 61 days. Download 1040x Holding period reduced where risk of loss is diminished. Download 1040x   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. Download 1040x 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. Download 1040x You were grantor (writer) of an option to buy substantially identical stock or securities. Download 1040x Your risk of loss is diminished by holding one or more other positions in substantially similar or related property. Download 1040x   For information about how to apply condition (3), see Regulations section 1. Download 1040x 246-5. Download 1040x Qualified foreign corporation. Download 1040x   A foreign corporation is a qualified foreign corporation if it meets any of the following conditions. Download 1040x The corporation is incorporated in a U. Download 1040x S. Download 1040x possession. Download 1040x 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. Download 1040x For a list of those treaties, see Table 8-1. Download 1040x 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. Download 1040x See Readily tradable stock , later. Download 1040x Exception. Download 1040x   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. Download 1040x Readily tradable stock. Download 1040x   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. Download 1040x For a list of the exchanges that meet these requirements, see www. Download 1040x sec. Download 1040x gov/divisions/marketreg/mrexchanges. Download 1040x shtml. Download 1040x Dividends that are not qualified dividends. Download 1040x   The following dividends are not qualified dividends. Download 1040x They are not qualified dividends even if they are shown in box 1b of Form 1099-DIV. Download 1040x Capital gain distributions. Download 1040x Dividends paid on deposits with mutual savings banks, cooperative banks, credit unions, U. Download 1040x S. Download 1040x building and loan associations, U. Download 1040x S. Download 1040x savings and loan associations, federal savings and loan associations, and similar financial institutions. Download 1040x (Report these amounts as interest income. Download 1040x ) 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. Download 1040x 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. Download 1040x 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. Download 1040x Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Download 1040x 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. Download 1040x Table 8-1. Download 1040x Income Tax Treaties Income tax treaties the United States has with the following countries satisfy requirement (2) under Qualified foreign corporation. Download 1040x 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. Download 1040x 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. Download 1040x Most mutual funds also permit shareholders to automatically reinvest distributions in more shares in the fund, instead of receiving cash. Download 1040x 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. Download 1040x 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. Download 1040x 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. Download 1040x But you may be able to deduct the service charge. Download 1040x See chapter 28 for more information about deducting expenses of producing income. Download 1040x In some dividend reinvestment plans, you can invest more cash to buy shares of stock at a price less than fair market value. Download 1040x 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. Download 1040x When figuring this amount, use the fair market value of the stock on the dividend payment date. Download 1040x Money Market Funds Report amounts you receive from money market funds as dividend income. Download 1040x Money market funds are a type of mutual fund and should not be confused with bank money market accounts that pay interest. Download 1040x 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). Download 1040x They will be shown in box 2a of the Form 1099-DIV you receive from the mutual fund or REIT. Download 1040x Report capital gain distributions as long-term capital gains, regardless of how long you owned your shares in the mutual fund or REIT. Download 1040x Undistributed capital gains of mutual funds and REITs. Download 1040x    Some mutual funds and REITs keep their long-term capital gains and pay tax on them. Download 1040x You must treat your share of these gains as distributions, even though you did not actually receive them. Download 1040x However, they are not included on Form 1099-DIV. Download 1040x Instead, they are reported to you in box 1a of Form 2439. Download 1040x   Report undistributed capital gains (box 1a of Form 2439) as long-term capital gains on Schedule D (Form 1040), column (h), line 11. Download 1040x   The tax paid on these gains by the mutual fund or REIT is shown in box 2 of Form 2439. Download 1040x You take credit for this tax by including it on Form 1040, line 71, and checking box a on that line. Download 1040x Attach Copy B of Form 2439 to your return, and keep Copy C for your records. Download 1040x Basis adjustment. Download 1040x   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. Download 1040x Additional information. Download 1040x   For more information on the treatment of distributions from mutual funds, see Publication 550. Download 1040x 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. Download 1040x You should receive a Form 1099-DIV or other statement showing the nondividend distribution. Download 1040x On Form 1099-DIV, a nondividend distribution will be shown in box 3. Download 1040x If you do not receive such a statement, you report the distribution as an ordinary dividend. Download 1040x Basis adjustment. Download 1040x   A nondividend distribution reduces the basis of your stock. Download 1040x It is not taxed until your basis in the stock is fully recovered. Download 1040x This nontaxable portion is also called a return of capital; it is a return of your investment in the stock of the company. Download 1040x 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. Download 1040x   When the basis of your stock has been reduced to zero, report any additional nondividend distribution you receive as a capital gain. Download 1040x Whether you report it as a long-term or short-term capital gain depends on how long you have held the stock. Download 1040x See Holding Period in chapter 14. Download 1040x Example. Download 1040x You bought stock in 2000 for $100. Download 1040x In 2003, you received a nondividend distribution of $80. Download 1040x You did not include this amount in your income, but you reduced the basis of your stock to $20. Download 1040x You received a nondividend distribution of $30 in 2013. Download 1040x The first $20 of this amount reduced your basis to zero. Download 1040x You report the other $10 as a long-term capital gain for 2013. Download 1040x You must report as a long-term capital gain any nondividend distribution you receive on this stock in later years. Download 1040x Liquidating Distributions Liquidating distributions, sometimes called liquidating dividends, are distributions you receive during a partial or complete liquidation of a corporation. Download 1040x These distributions are, at least in part, one form of a return of capital. Download 1040x They may be paid in one or more installments. Download 1040x You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9. Download 1040x For more information on liquidating distributions, see chapter 1 of Publication 550. Download 1040x Distributions of Stock and Stock Rights Distributions by a corporation of its own stock are commonly known as stock dividends. Download 1040x Stock rights (also known as “stock options”) are distributions by a corporation of rights to acquire the corporation's stock. Download 1040x Generally, stock dividends and stock rights are not taxable to you, and you do not report them on your return. Download 1040x Taxable stock dividends and stock rights. Download 1040x   Distributions of stock dividends and stock rights are taxable to you if any of the following apply. Download 1040x You or any other shareholder have the choice to receive cash or other property instead of stock or stock rights. Download 1040x 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. Download 1040x The distribution is in convertible preferred stock and has the same result as in (2). Download 1040x The distribution gives preferred stock to some common stock shareholders and common stock to other common stock shareholders. Download 1040x The distribution is on preferred stock. Download 1040x (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. Download 1040x )   The term “stock” includes rights to acquire stock, and the term “shareholder” includes a holder of rights or of convertible securities. Download 1040x If you receive taxable stock dividends or stock rights, include their fair market value at the time of distribution in your income. Download 1040x Preferred stock redeemable at a premium. Download 1040x   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. Download 1040x For more information, see chapter 1 of Publication 550. Download 1040x Basis. Download 1040x   Your basis in stock or stock rights received in a taxable distribution is their fair market value when distributed. Download 1040x 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. Download 1040x Fractional shares. Download 1040x    You may not own enough stock in a corporation to receive a full share of stock if the corporation declares a stock dividend. Download 1040x 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. Download 1040x Any cash you receive for fractional shares under such a plan is treated as an amount realized on the sale of the fractional shares. Download 1040x Report this transaction on Form 8949, Sales and Other Dispositions of Capital Assets. Download 1040x 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. Download 1040x    Report these transactions on Form 8949 with the correct box checked. Download 1040x   For more information on Form 8949 and Schedule D (Form 1040), see chapter 4 of Publication 550. Download 1040x Also see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Download 1040x Example. Download 1040x You own one share of common stock that you bought on January 3, 2004, for $100. Download 1040x The corporation declared a common stock dividend of 5% on June 29, 2013. Download 1040x The fair market value of the stock at the time the stock dividend was declared was $200. Download 1040x You were paid $10 for the fractional-share stock dividend under a plan described in the discussion above. Download 1040x You figure your gain or loss as follows: Fair market value of old stock $200. Download 1040x 00 Fair market value of stock dividend (cash received) +10. Download 1040x 00 Fair market value of old stock and stock dividend $210. Download 1040x 00 Basis (cost) of old stock after the stock dividend (($200 ÷ $210) × $100) $95. Download 1040x 24 Basis (cost) of stock dividend (($10 ÷ $210) × $100) + 4. Download 1040x 76 Total $100. Download 1040x 00 Cash received $10. Download 1040x 00 Basis (cost) of stock dividend − 4. Download 1040x 76 Gain $5. Download 1040x 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. Download 1040x Scrip dividends. Download 1040x   A corporation that declares a stock dividend may issue you a scrip certificate that entitles you to a fractional share. Download 1040x The certificate is generally nontaxable when you receive it. Download 1040x 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. Download 1040x   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. Download 1040x You must include its fair market value in income on the date you receive it. Download 1040x Other Distributions You may receive any of the following distributions during the year. Download 1040x Exempt-interest dividends. Download 1040x   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. Download 1040x Exempt-interest dividends should be shown in box 10 of Form 1099-DIV. Download 1040x Information reporting requirement. Download 1040x   Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file a return. Download 1040x This is an information reporting requirement and does not change the exempt-interest dividends to taxable income. Download 1040x Alternative minimum tax treatment. Download 1040x   Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. Download 1040x See Alternative Minimum Tax (AMT) in chapter 30 for more information. Download 1040x Dividends on insurance policies. Download 1040x    Insurance policy dividends the insurer keeps and uses to pay your premiums are not taxable. Download 1040x However, you must report as taxable interest income the interest that is paid or credited on dividends left with the insurance company. Download 1040x    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. Download 1040x Do not include them in your gross income until they are more than the total of all net premiums you paid for the contract. Download 1040x Report any taxable distributions on insurance policies on Form 1040, line 21. Download 1040x Dividends on veterans' insurance. Download 1040x   Dividends you receive on veterans' insurance policies are not taxable. Download 1040x In addition, interest on dividends left with the Department of Veterans Affairs is not taxable. Download 1040x Patronage dividends. Download 1040x   Generally, patronage dividends you receive in money from a cooperative organization are included in your income. Download 1040x   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. Download 1040x But you must reduce the basis (cost) of the items bought. Download 1040x If the dividend is more than the adjusted basis of the assets, you must report the excess as income. Download 1040x   These rules are the same whether the cooperative paying the dividend is a taxable or tax-exempt cooperative. Download 1040x Alaska Permanent Fund dividends. Download 1040x    Do not report these amounts as dividends. Download 1040x Instead, report these amounts on Form 1040, line 21; Form 1040A, line 13; or Form 1040EZ, line 3. Download 1040x How To Report Dividend Income Generally, you can use either Form 1040 or Form 1040A to report your dividend income. Download 1040x Report the total of your ordinary dividends on line 9a of Form 1040 or Form 1040A. Download 1040x Report qualified dividends on line 9b of Form 1040 or Form 1040A. Download 1040x If you receive capital gain distributions, you may be able to use Form 1040A or you may have to use Form 1040. Download 1040x See Exceptions to filing Form 8949 and Schedule D (Form 1040) in chapter 16. Download 1040x If you receive nondividend distributions required to be reported as capital gains, you must use Form 1040. Download 1040x You cannot use Form 1040EZ if you receive any dividend income. Download 1040x Form 1099-DIV. Download 1040x   If you owned stock on which you received $10 or more in dividends and other distributions, you should receive a Form 1099-DIV. Download 1040x Even if you do not receive Form 1099-DIV, you must report all your dividend income. Download 1040x   See Form 1099-DIV for more information on how to report dividend income. Download 1040x Form 1040A or 1040. Download 1040x    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. Download 1040x If your ordinary dividends are more than $1,500, you must also complete Schedule B (Form 1040A or 1040), Part III. Download 1040x   List on Schedule B (Form 1040A or 1040), Part II, line 5, each payer's name and the ordinary dividends you received. Download 1040x 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. Download 1040x 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. Download 1040x   Enter on line 6 the total of the amounts listed on line 5. Download 1040x Also enter this total on line 9a of Form 1040A or 1040. Download 1040x Qualified dividends. Download 1040x   Report qualified dividends (Form 1099-DIV, box 1b) on line 9b of Form 1040 or Form 1040A. Download 1040x The amount in box 1b is already included in box 1a. Download 1040x Do not add the amount in box 1b to, or substract it from, the amount in box 1a. Download 1040x   Do not include any of the following on line 9b. Download 1040x Qualified dividends you received as a nominee. Download 1040x See Nominees under How to Report Dividend Income in chapter 1 of Publication 550. Download 1040x Dividends on stock for which you did not meet the holding period. Download 1040x See Holding period , earlier under Qualified Dividends. Download 1040x 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. Download 1040x Payments in lieu of dividends, but only if you know or have reason to know the payments are not qualified dividends. Download 1040x 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. Download 1040x   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. Download 1040x Enter qualified dividends on line 2 of the worksheet. Download 1040x Investment interest deducted. Download 1040x   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. Download 1040x Reduce it by the qualified dividends you choose to include in investment income when figuring the limit on your investment interest deduction. Download 1040x This is done on the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet. Download 1040x For more information about the limit on investment interest, see Investment expenses in chapter 23. Download 1040x Expenses related to dividend income. Download 1040x   You may be able to deduct expenses related to dividend income if you itemize your deductions on Schedule A (Form 1040). Download 1040x See chapter 28 for general information about deducting expenses of producing income. Download 1040x More information. Download 1040x    For more information about how to report dividend income, see chapter 1 of Publication 550 or the instructions for the form you must file. Download 1040x Prev  Up  Next   Home   More Online Publications
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Download 1040x 5. Download 1040x   Taxes Table of Contents What's New Introduction Topics - This chapter discusses: Useful Items - You may want to see: When To Deduct Taxes Real Estate TaxesSeparate elections. Download 1040x Making the election. Download 1040x Form 3115. Download 1040x Income TaxesAccrual of contested income taxes. Download 1040x Employment Taxes Other TaxesAdditional Medicare Tax. Download 1040x What's New Additional Medicare Tax. Download 1040x  Beginning in 2013, you must withhold a 0. Download 1040x 9% Additional Medicare Tax from wages you pay to an employee in excess of $200,000 in a calendar year. Download 1040x Also, self-employed individuals may be required to pay Additional Medicare Tax on self-employment income. Download 1040x See Employment Taxes , and Self-employment tax , later. Download 1040x Introduction You can deduct various federal, state, local, and foreign taxes directly attributable to your trade or business as business expenses. Download 1040x You cannot deduct federal income taxes, estate and gift taxes, or state inheritance, legacy, and succession taxes. Download 1040x Topics - This chapter discusses: When to deduct taxes Real estate taxes Income taxes Employment taxes Other taxes Useful Items - You may want to see: Publication 15 (Circular E), Employer's Tax Guide 334 Tax Guide for Small Business 510 Excise Taxes 538 Accounting Periods and Methods 551 Basis of Assets Form (and Instructions) Sch A (Form 1040) Itemized Deductions Sch SE (Form 1040) Self-Employment Tax 3115 Application for Change in Accounting Method 8959 Additional Medicare Tax See chapter 12 for information about getting publications and forms. Download 1040x When To Deduct Taxes Generally, you can only deduct taxes in the year you pay them. Download 1040x This applies whether you use the cash method or an accrual method of accounting. Download 1040x Under an accrual method, you can deduct a tax before you pay it if you meet the exception for recurring items discussed under Economic Performance in Publication 538. Download 1040x You can also elect to ratably accrue real estate taxes as discussed later under Real Estate Taxes . Download 1040x Limit on accrual of taxes. Download 1040x   A taxing jurisdiction can require the use of a date for accruing taxes that is earlier than the date it originally required. Download 1040x However, if you use an accrual method, and can deduct the tax before you pay it, use the original accrual date for the year of change and all future years to determine when you can deduct the tax. Download 1040x Example. Download 1040x Your state imposes a tax on personal property used in a trade or business conducted in the state. Download 1040x This tax is assessed and becomes a lien as of July 1 (accrual date). Download 1040x In 2013, the state changed the assessment and lien dates from July 1, 2014, to December 31, 2013, for property tax year 2014. Download 1040x Use the original accrual date (July 1, 2014) to determine when you can deduct the tax. Download 1040x You must also use the July 1 accrual date for all future years to determine when you can deduct the tax. Download 1040x Uniform capitalization rules. Download 1040x   Uniform capitalization rules apply to certain taxpayers who produce real property or tangible personal property for use in a trade or business or for sale to customers. Download 1040x They also apply to certain taxpayers who acquire property for resale. Download 1040x Under these rules, you either include certain costs in inventory or capitalize certain expenses related to the property, such as taxes. Download 1040x For more information, see chapter 1. Download 1040x Carrying charges. Download 1040x   Carrying charges include taxes you pay to carry or develop real estate or to carry, transport, or install personal property. Download 1040x You can elect to capitalize carrying charges not subject to the uniform capitalization rules if they are otherwise deductible. Download 1040x For more information, see chapter 7. Download 1040x Refunds of taxes. Download 1040x   If you receive a refund for any taxes you deducted in an earlier year, include the refund in income to the extent the deduction reduced your federal income tax in the earlier year. Download 1040x For more information, see Recovery of amount deducted (tax benefit rule) in chapter 1. Download 1040x    You must include in income any interest you receive on tax refunds. Download 1040x Real Estate Taxes Deductible real estate taxes are any state, local, or foreign taxes on real estate levied for the general public welfare. Download 1040x The taxing authority must base the taxes on the assessed value of the real estate and charge them uniformly against all property under its jurisdiction. Download 1040x Deductible real estate taxes generally do not include taxes charged for local benefits and improvements that increase the value of the property. Download 1040x See Taxes for local benefits , later. Download 1040x If you use an accrual method, you generally cannot accrue real estate taxes until you pay them to the government authority. Download 1040x However, you can elect to ratably accrue the taxes during the year. Download 1040x See Electing to ratably accrue , later. Download 1040x Taxes for local benefits. Download 1040x   Generally, you cannot deduct taxes charged for local benefits and improvements that tend to increase the value of your property. Download 1040x These include assessments for streets, sidewalks, water mains, sewer lines, and public parking facilities. Download 1040x You should increase the basis of your property by the amount of the assessment. Download 1040x   You can deduct taxes for these local benefits only if the taxes are for maintenance, repairs, or interest charges related to those benefits. Download 1040x If part of the tax is for maintenance, repairs, or interest, you must be able to show how much of the tax is for these expenses to claim a deduction for that part of the tax. Download 1040x Example. Download 1040x To improve downtown commercial business, Waterfront City converted a downtown business area street into an enclosed pedestrian mall. Download 1040x The city assessed the full cost of construction, financed with 10-year bonds, against the affected properties. Download 1040x The city is paying the principal and interest with the annual payments made by the property owners. Download 1040x The assessments for construction costs are not deductible as taxes or as business expenses, but are depreciable capital expenses. Download 1040x The part of the payments used to pay the interest charges on the bonds is deductible as taxes. Download 1040x Charges for services. Download 1040x   Water bills, sewerage, and other service charges assessed against your business property are not real estate taxes, but are deductible as business expenses. Download 1040x Purchase or sale of real estate. Download 1040x   If real estate is sold, the real estate taxes must be allocated between the buyer and the seller. Download 1040x   The buyer and seller must allocate the real estate taxes according to the number of days in the real property tax year (the period to which the tax imposed relates) that each owned the property. Download 1040x Treat the seller as paying the taxes up to but not including the date of sale. Download 1040x Treat the buyer as paying the taxes beginning with the date of sale. Download 1040x You can usually find this information on the settlement statement you received at closing. Download 1040x   If you (the seller) use an accrual method and have not elected to ratably accrue real estate taxes, you are considered to have accrued your part of the tax on the date you sell the property. Download 1040x Example. Download 1040x Alberto Verde, a calendar year accrual method taxpayer, owns real estate in Olmo County. Download 1040x He has not elected to ratably accrue property taxes. Download 1040x November 30 of each year is the assessment and lien date for the current real property tax year, which is the calendar year. Download 1040x He sold the property on June 30, 2013. Download 1040x Under his accounting method he would not be able to claim a deduction for the taxes because the sale occurred before November 30. Download 1040x He is treated as having accrued his part of the tax, 181/366  (January 1–June 29), on June 30, and he can deduct it for 2013. Download 1040x Electing to ratably accrue. Download 1040x   If you use an accrual method, you can elect to accrue real estate tax related to a definite period ratably over that period. Download 1040x Example. Download 1040x Juan Sanchez is a calendar year taxpayer who uses an accrual method. Download 1040x His real estate taxes for the real property tax year, July 1, 2013, to June 30, 2014, are $1,200. Download 1040x July 1 is the assessment and lien date. Download 1040x If Juan elects to ratably accrue the taxes, $600 will accrue in 2013 ($1,200 × 6/12, July 1–December 31) and the balance will accrue in 2014. Download 1040x Separate elections. Download 1040x   You can elect to ratably accrue the taxes for each separate trade or business and for nonbusiness activities if you account for them separately. Download 1040x Once you elect to ratably accrue real estate taxes, you must use that method unless you get permission from the IRS to change. Download 1040x See Form 3115 , later. Download 1040x Making the election. Download 1040x   If you elect to ratably accrue the taxes for the first year in which you incur real estate taxes, attach a statement to your income tax return for that year. Download 1040x The statement should show all the following items. Download 1040x The trades or businesses to which the election applies and the accounting method or methods used. Download 1040x The period to which the taxes relate. Download 1040x The computation of the real estate tax deduction for that first year. Download 1040x   Generally, you must file your return by the due date (including extensions). Download 1040x However, if you timely filed your return for the year without electing to ratably accrue, you can still make the election by filing an amended return within 6 months after the due date of the return (excluding extensions). Download 1040x Attach the statement to the amended return and write “Filed pursuant to section 301. Download 1040x 9100-2” on the statement. Download 1040x File the amended return at the same address where you filed the original return. Download 1040x Form 3115. Download 1040x    If you elect to ratably accrue real estate taxes for a year after the first year in which you incur real estate taxes, or if you want to revoke your election to ratably accrue real estate taxes, file Form 3115. Download 1040x For more information, including applicable time frames for filing, see the Instructions for Form 3115. Download 1040x Note. Download 1040x If you are filing an application for a change in accounting method filed after January 9, 2011, for a year of change ending after April 29, 2010, see Revenue Procedure 2011-14, 2011-4 I. Download 1040x R. Download 1040x B. Download 1040x 330, as modified and clarified by Revenue Procedure 2012-19, 2012-14 I. Download 1040x R. Download 1040x B. Download 1040x 689, and Revenue Procedure 2012-20, 2012-14 I. Download 1040x R. Download 1040x B. Download 1040x 700, or any successor. Download 1040x Revenue Procedure 2011-14 is available at  www. Download 1040x irs. Download 1040x gov/irb/2011-04IRB/ar08. Download 1040x html. Download 1040x Income Taxes This section discusses federal, state, local, and foreign income taxes. Download 1040x Federal income taxes. Download 1040x   You cannot deduct federal income taxes. Download 1040x State and local income taxes. Download 1040x   A corporation or partnership can deduct state and local income taxes imposed on the corporation or partnership as business expenses. Download 1040x An individual can deduct state and local income taxes only as an itemized deduction on Schedule A (Form 1040). Download 1040x   However, an individual can deduct a state tax on gross income (as distinguished from net income) directly attributable to a trade or business as a business expense. Download 1040x Accrual of contested income taxes. Download 1040x   If you use an accrual method, and you contest a state or local income tax liability, you must accrue and deduct any contested amount in the tax year in which the liability is finally determined. Download 1040x   If additional state or local income taxes for a prior year are assessed in a later year, you can deduct the taxes in the year in which they were originally imposed (the prior year) if the tax liability is not contested. Download 1040x You cannot deduct them in the year in which the liability is finally determined. Download 1040x    The filing of an income tax return is not considered a contest and, in the absence of an overt act of protest, you can deduct the tax in the prior year. Download 1040x Also, you can deduct any additional taxes in the prior year if you do not show some affirmative evidence of denial of the liability. Download 1040x   However, if you consistently deduct additional assessments in the year they are paid or finally determined (including those for which there was no contest), you must continue to do so. Download 1040x You cannot take a deduction in the earlier year unless you receive permission to change your method of accounting. Download 1040x For more information on accounting methods, see When Can I Deduct an Expense in chapter 1. Download 1040x Foreign income taxes. Download 1040x   Generally, you can take either a deduction or a credit for income taxes imposed on you by a foreign country or a U. Download 1040x S. Download 1040x possession. Download 1040x However, an individual cannot take a deduction or credit for foreign income taxes paid on income that is exempt from U. Download 1040x S. Download 1040x tax under the foreign earned income exclusion or the foreign housing exclusion. Download 1040x For information on these exclusions, see Publication 54, Tax Guide for U. Download 1040x S. Download 1040x Citizens and Resident Aliens Abroad. Download 1040x For information on the foreign tax credit, see Publication 514, Foreign Tax Credit for Individuals. Download 1040x Employment Taxes If you have employees, you must withhold various taxes from your employees' pay. Download 1040x Most employers must withhold their employees' share of social security, Medicare taxes, and Additional Medicare Tax (if applicable) along with state and federal income taxes. Download 1040x You may also need to pay certain employment taxes from your own funds. Download 1040x These include your share of social security and Medicare taxes as an employer, along with unemployment taxes. Download 1040x Note. Download 1040x Additional Medicare Tax is only imposed on the employee. Download 1040x There is no employer share of Additional Medicare Tax. Download 1040x Your deduction for wages paid is not reduced by the social security and Medicare taxes, Additional Medicare Tax, and income taxes you withhold from your employees. Download 1040x You can deduct the employment taxes you must pay from your own funds as taxes. Download 1040x Example. Download 1040x You pay your employee $18,000 a year. Download 1040x However, after you withhold various taxes, your employee receives $14,500. Download 1040x You also pay an additional $1,500 in employment taxes. Download 1040x You should deduct the full $18,000 as wages. Download 1040x You can deduct the $1,500 you pay from your own funds as taxes. Download 1040x For more information on employment taxes, see Publication 15 (Circular E). Download 1040x Unemployment fund taxes. Download 1040x   As an employer, you may have to make payments to a state unemployment compensation fund or to a state disability benefit fund. Download 1040x Deduct these payments as taxes. Download 1040x Other Taxes The following are other taxes you can deduct if you incur them in the ordinary course of your trade or business. Download 1040x Excise taxes. Download 1040x   Generally, you can deduct as a business expense all excise taxes that are ordinary and necessary expenses of carrying on your trade or business. Download 1040x However, see Fuel taxes , later. Download 1040x   For more information on excise taxes, see Publication 510. Download 1040x Franchise taxes. Download 1040x   You can deduct corporate franchise taxes as a business expense. Download 1040x Fuel taxes. Download 1040x   Generally, taxes on gasoline, diesel fuel, and other motor fuels that you use in your business are included as part of the cost of the fuel. Download 1040x Do not deduct these taxes as a separate item. Download 1040x   You may be entitled to a credit or refund for federal excise tax you paid on fuels used for certain purposes. Download 1040x For more information, see Publication 510. Download 1040x Occupational taxes. Download 1040x   You can deduct as a business expense an occupational tax charged at a flat rate by a locality for the privilege of working or conducting a business in the locality. Download 1040x Personal property tax. Download 1040x   You can deduct any tax imposed by a state or local government on personal property used in your trade or business. Download 1040x Sales tax. Download 1040x   Treat any sales tax you pay on a service or on the purchase or use of property as part of the cost of the service or property. Download 1040x If the service or the cost or use of the property is a deductible business expense, you can deduct the tax as part of that service or cost. Download 1040x If the property is merchandise bought for resale, the sales tax is part of the cost of the merchandise. Download 1040x If the property is depreciable, add the sales tax to the basis for depreciation. Download 1040x For more information on basis, see Publication 551. Download 1040x    Do not deduct state and local sales taxes imposed on the buyer that you must collect and pay over to the state or local government. Download 1040x Also, do not include these taxes in gross receipts or sales. Download 1040x Self-employment tax. Download 1040x   You can deduct part of your self-employment tax as a business expense in figuring your adjusted gross income. Download 1040x This deduction only affects your income tax. Download 1040x It does not affect your net earnings from self-employment or your self-employment tax. Download 1040x   To deduct the tax, enter on Form 1040, line 27, the amount shown on the Deduction for one-half of self-employment tax line of Schedule SE (Form 1040). Download 1040x   For more information on self-employment tax, see Publication 334. Download 1040x Additional Medicare Tax. Download 1040x   Beginning in 2013, you may be required to pay Additional Medicare Tax on self-employment income. Download 1040x See Form 8959 and the Instructions for Form 8959 for more information on the Additional Medicare Tax. Download 1040x Prev  Up  Next   Home   More Online Publications