Taxes on Ordinary, Qualified Dividends
Not sure how to handle your dividend income from Form 1099-DIV on your next tax return?
What Are Dividends?
The most common dividends are the distributions of profit that a corporation pays to its shareholders. Dividends are most frequently distributed as cash, but they may also come in the form of stocks, stock options, debt payments, property, or even services. This type of income is usually reported on Form 1099-DIV to the IRS and you. You will typically receive this form if you receive dividends totaling $10 or more during a tax year. The form reports the dividends from a given financial institution, any applicable capital gains distributions, and taxes withheld, if any.
Payments from mutual funds may also be dividends. A mutual fund is an investment company that buys and sells assets to earn profit for itself and its investors. The portions of the profit passed on to investors are dividends, unless the assets were held long enough for the profits to be considered capital gains.
Partnerships and S-corporations may also pay out dividends. Some distributions from trusts and estates can also be considered dividends.
When you invest in a corporation, mutual fund, or partnership, you may receive these dividends monthly, quarterly, or annually. Typically, most of these payments are made quarterly. At the end of a given year, a company will report their dividend yield, which is a simple ratio of its annual dividends-per-share compared to the current share price as a percentage. For example, if a company pays an annual $1.25 dividend and their stock price is $120, then their yield is 1.04%. Investors can use this to determine the potential risks and perks of investing in a particular stock.
When reporting dividends on your 2020 Tax Return, the eFile App will help input your information and handle any complicated math.
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Types of Dividends and Tax Rates
There are two types of dividends:
- Ordinary dividends are the most common type of dividend and are usually paid out from the earnings of a corporation. Generally, any dividend that is paid out from a common or preferred stock is an ordinary dividend unless otherwise stated. Ordinary dividends are taxed as ordinary income.
- Qualified dividends are dividends that meet the requirements to be taxed as capital gains. Under current law, qualified dividends are taxed at a 20%, 15%, or 0% rate, depending on your tax bracket. See capital games for details on current, past, and future tax rates for reporting gains or losses.
All dividends are taxable and all dividend income must be reported. This includes dividends reinvested to purchase stock. If you received dividends totaling $10 or more from any entity, then you should receive a Form 1099-DIV stating the amount you received. If you received dividends from a trust, estate, or S-corporation, then you should also receive a Schedule K-1, which will tell you how much of the dividends are taxable to you.
If you don't receive either form, but you did receive dividends in any amount, then you should still report your dividend income on your tax return. Keep track of your investments through a journal or log to have the information handy. Then, prepare and e-file your 2020 Taxes with eFile.com. The app will ask you about any dividends you may have received and help you report the information properly.
Report Dividend Income on A Tax Return
Dividends are reported to you on Form 1099-DIV and the eFile tax app will include this income on Form 1040. If the ordinary dividends you received total more than $1,500, or if you received dividends that belong to someone else because you are a nominee, then Schedule B will be included - eFileIT. Information on Capital Gains Taxes and Capital Loss Deductions.
For more information, read this IRS publication on Capital Gains and Losses.
Use our Free Tax Tools, including our Tax Calculator, to estimate your taxes or determine eligibility for tax credits. Get your taxes done with eFile.com; the app will help select and complete any applicable tax forms, report information, determine any tax deductions, and report dividends and gains properly.
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