Posted by Abundant Wealth Planning LLC

What Is Dividend Income and How to Report It

What Is Dividend Income and How to Report It

Uncle Sam believes that dividends are taxable income. As a result, no matter the amount, it is imperative you report them on your returns. 

Dividends can be considered as your share of some investments. For instance, shares from a mutual fund, corporate stocks, etc. Ordinary dividend encompasses the total dividends. It can, however, contain both qualified as well as nonqualified dividends. 

The long term capital gains rate tax applies to qualified dividends only. These are paid on corporate stocks, and the rate is not up to the ordinary income tax rate. Unqualified dividends, on the other hand, are subjected to a high-income tax rate. 

To classify your dividend as qualified, you need to retain the stock investment for more than two months in the 121 day duration, which starts 60 days before the ex-dividend date. This, at times, is the date the board pays the shareholders their dividends. 


Reporting Dividend Income: Form 1099-DIV

Mutual fund firms, corporations, and firms give out 1099-DIV to their investors who get a dividend amount valued at $10 or more for a year. Here is how to report dividend income using Form 1099-DIV

Box 1a: The entire dividend amount you got - ordinary Dividends

Box 1b: the part of your entire dividends that will be subjected to the tax rate for the preferred capital gains - Qualified dividends

Box 3: Non-dividend distributions, the nontaxable capital return.

For investors with taxes withheld from their dividends, the value will reflect in box 4 and 7. 


Reporting Dividends on Form 1040

Qualified dividends will reflect on Line 31 of Form 1040

ordinary dividends will reflect on line 3b of form 1040

You can estimate the qualified dividend tax using the tax worksheet available in Form 1040 and employing the right tax rates.

According to Uncle Sam, dividends will be taxed, and if you reinvest or you got extra stock, it must reflect in your tax return.


Employing Schedule B

If you have dividend income and interest from several sources, you will use Schedule B to report them. For investors with more than $1,500 in interest income, schedule B is essential. 

The first part reflects the taxable interest you got, while the second part has to do with ordinary dividends. 

A good idea is to use the form to cross check your dividends and interest to help have an accurate record on Form 1040.


FOR MORE INFORMATION OR TO MAKE AN APPOINTMENT WITH Abundant Wealth Planning LLC, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


THANKS FOR VISITING.



Abundant Wealth Planning LLC
Contact Member