If you invested your money in stocks and mutual funds and received dividends and capital gains distributions, you will likely receive a Form 1099-DIV from your payers.
In this article, you will learn what Form 1099-DIV is, who can file it, how to file Form 1099-DIV, how to file dividends without one, and what the deadline is.
What is Form 1099-DIV?
The IRS states the purpose of Form 1099-DIV, Dividends and Distribution, as follows.
"Banks and other financial institutions use this form to report dividends and other distributions to taxpayers and the IRS."
The IRS has released detailed instructions for the 1099-DIV. If you received this form, you received $10 or more dividends.
This tax form contains the following information:
Capital distributions
Dividends received
Investment expenditure
Non-dividend distributions
Withholding tax
Distribution versus Dividends
Not all distributions are classified as dividends. Distributions may qualify as dividends or capital gains depending on the investment to which they belong. If you have an investment in a company, it will pay dividends out of your after-tax earnings once it retains a percentage. When you receive a distribution from a mutual fund, it may represent the payment of dividends, interest, or capital gains.
Capital Gains versus Dividends
When you sell your equity asset, the difference between its cost and its income generates capital gains or losses, while a dividend is authorized by the board that is in charge of declaring one. It is distributed to shareholders from a company's after-tax profits.
Who can fill out Form 1099-DIV?
The following entities and institutions are required to provide a copy of Form 1099-DIV to investors and the IRS if they pay dividends out of their income:
Banks
Corporations
Financial Institutions
Investment Companies
How to File Form 1099-DIV?
The IRS Form 1099-DIV has three copies. Copy A, in red, is informative and should not be printed. There are two parts to copy B, which can be downloaded and printed. One is for the beneficiary, and the other is attached to the state tax department's tax return. The section, which is in black, can be used to meet the recipient's requirements.
Taxpayers must submit information for each Form 1099-DIV they receive on their annual tax return. This can be done directly on Form 1040 or on a Schedule B Form. Taxpayers who receive more than $1,500 of taxable interest and/or common dividends during the year should complete Schedule B, which accompanies Form 1040.
With some exceptions, dividends are taxed at the investor's income tax rate. Qualified dividends are the main exception. Eligible dividends meet certain criteria that let them be taxed at a lower capital gains tax rate.
The capital gains tax rate may also differ from the normal tax rate. Short-term capital gains are taxed at the normal tax rate; however, taxes on long-term capital gains are lower.
Now that you know what a 1099-DIV form is, let's see how to complete it. Form 1099-DIV has an A copy and a B copy.
Copy A
It appears in red and is for informational purposes only. The IRS has strictly prohibited the printing and storage of copies downloaded from the site, as they cannot be scanned. It imposes a penalty on those who do so. Therefore, be sure to ask the IRS to send you a scannable copy A.
Copy B
The website version can be downloaded and printed.
It has two parts:
for state department
for the recipient
Each form requires the payer's identity and the recipient's personal data. And it requests for dividends and distributions received. Now let's look at some of the common boxes that are relevant in most cases.
Box 1: Ordinary vs. Qualified Dividends
Box 1a: Total ordinary dividends
Dividends are the most common distributions you receive. They are paid with income. But what are ordinary dividends? Ordinary dividends are taxed at the rate of income tax unless they are eligible dividends.
Box 1b: Eligible dividends
Eligible dividends are taxed at a lower capital gains tax rate, provided they meet the following criteria:
A US company must pay for it.
You held the shares as a holder for two months during the four months beginning two months before the ex-dividend date.
Dividends received from a foreign corporation will be eligible if there is a tax treaty between the United States and the country of incorporation. In addition, if the shares of a foreign company are listed on a US stock exchange, the dividends paid by it are eligible.
You may be wondering how you will know that the dividends received are eligible. Well, the companies, banks, or finance companies paying the dividend are required to correctly identify the type and amount for you.
Box 2a: Total Capital Gain
The capital gains tax rate will be determined by the time you hold capital property. Short-term capital gains are taxed at the normal income tax rate, while long-term capital gains have lower tax rates.
How do I declare dividends without a 1099-DIV?
Consider a scenario where you received your dividends but did not receive your Form 1099-DIV. That doesn't mean you shouldn't report. If you received ordinary interest or dividends during the tax year and the amount is more than $1,500, you must complete Schedule B with your 1040 tax form.
It should be noted that if you have a financial business overseas, you must comply with the Foreign Account Tax Compliance Act (FACTA) requirements.
When is the filing deadline?
As an investor, you may receive multiple 1099-DIVs and must report them when you prepare your individual tax return. You must receive Form 1099-DIV by January 31 each year from banks, financial institutions, corporations, and investment firms. You need the information you have when you file your tax return.
Now you know what Form 1099-DIV is and how it works in the tax area. But it's always a good idea to seek advice from a tax expert. The Tax Specialist's tax preparation assistance will ensure that reported income and calculated taxes comply with tax laws and regulations.
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