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Dividends are distributions of money, stock, or other property a corporation pays you because you own stock in that corporation. You also may receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation. Most distributions are paid in cash. An individual may also receive distributions such as additional stock, stock rights, other property or services.

You should receive a Form 1099-DIV (PDF), Dividends and Distributions, from each payor for distributions of $10.00 or more. Also, if you receive dividends through a partnership, an estate, a trust, or an association that is taxed as a corporation, you should receive a Schedule K-1 from that entity indicating the amount of dividends taxable to you. However, you must report all taxable dividends even if you do not receive a Form 1099-DIV (PDF) or Schedule K-1.

Ordinary dividends are the most common type of distribution from a corporation. They are paid out of the earnings and profits of the corporation. Ordinary dividends are taxable as ordinary income unless they are qualified dividends. Qualified dividends are ordinary dividends that meet the requirements to be taxed at the same maximum rates as net capital gains.

Nondividend distributions can be made in the form of a return of capital or a tax-free distribution of additional shares of stock or stock rights. A return of capital is a return of some or all of your investment in the stock of the company. A return of capital reduces the basis of your stock and is not taxed until your basis in the stock is fully recovered. For information on Basis of Assets, refer to Basis of Assets. Once the basis of your stock has been reduced to zero, any further return of capital is a capital gain.

Capital gain distributions are paid by regulated investment companies, mutual funds, and real estate investment trust (REITs). Capital gain distributions are always reported as long-term capital gains. You must also report any undistributed capital gain that mutual fund or REIT credited to you. This undistributed gain is reported to you on Form 2439 (PDF). If your ordinary dividends are $1500.00 or less, report them directly on line 9a Form 1040 (PDF) or Form 1040A (PDF). If your ordinary dividends are over $1500.00 report them on Schedule B Form 1040 (PDF) or Schedule 1 Form 1040A (PDF) and enter the total on line 9a of the Form 1040 or 1040A. Enter qualified dividends on line 9b of either form. If you receive capital gain distributions, you may be able to report them directly on line 13 Form 1040 or line 10 Form 1040A. Refer to the Form 1040 Instructions or Form 1040A Instructions for more information on how to report qualifying dividends and capital gain distributions.

Form 1099-DIV should break down the distribution into the various categories. If it does not, you should contact the payor.

You must give your correct social security number to the payor of your dividend income. If you do not, you may be subject to a penalty and to back-up withholding. Refer to Backup Withholding for more information on back-up withholding.

If you receive dividends in significant amounts, you may have to pay estimated tax. Refer to Estimated Tax for information on estimated tax.

Additional information on dividend income can be found in Publication 550, Investment Income and Expenses, and Publication 564, Mutual Fund Distributions.

Source: IRS.gov

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