1099-DIV, or Proceeds from dividends, is a very common 1099. In fact it is probably one of the most common 1099’s that exist. Which is saying a lot considering there are 20 different 1099 forms. As such, it is important to have an understanding of what this form is, and how it is incorporated into you taxes. This article will aim to explain this form in plain English. While, summarizing all you need to know about form 1099-DIV.
So who gets a form 1099-DIV?
Well to be quite frank, the requirements for issuing a 1099-DIV are not very high. Essentially, all that is required is that the recipient has had been paid more than $10 of dividends from a business, or been paid $600 from a liquidation of a business. The most common way that people recieve this form is via a statement from their brokerage house. This statement is received by the recipient in the middle of February, in most cases. However, it can take as long as Mid March to recieve the 1099’s.
So how does 1099-DIV affect my taxes?
So the first thing that you’ll notice when you get any kind of 1099 is there a lot of boxes that might have to be filled out. It’s is common to get overwhelmed with this but usually there are only a few boxes that warrant your attention. First of all, on form 1099-DIV there are ordinary dividends, which are recorded on box 1a and qualified dividends that are recorded on box 1b. The difference between qualified and ordinary dividends is that ordinary dividends are taxed at ordinary income tax rates while qualified dividends are taxed at long term capital gains rates.
In order for a dividend to be qualified they must be paid by a U.S. Corporation. If the entity is a foreign corporation there are two exceptions that allow for qualified dividends. One is the corporation must either be a tax treaty between the corporation’s home country and the U.S. Or secondly, they must list their shares on a U.S. stock exchange. Moreover at a minimum the stock must be owned for more than 60 days for a period of time. This period of time begins during the 121-day period which begins 60 days before the ex-dividend date.
Schedule B and Mutual Funds
On form 1099-DIV, box 2a is where mutual fund distributions go. These distributions are generally allowed to be tax like long term capital gains. This is great because it allows for beneficial tax rates, that are not dependent on hold times.
Also 1099-DIV has an impact on Schedule B as well. If you didn’t know Schedule B is used to report dividend and interest income. Schedule B is required when the total amount of dividends or interest is more than $1,500.
Conclusion
In conclusion form 1099-DIV is very common in the tax world. In fact it is one of the most common forms you are likely to get. However, there are a lot of boxes on the form itself. Fortunately though, only a few boxes will pertain to most people. The most important distinction in form 1099-DIV is between qualified and ordinary income. Again fortunately, brokerage houses usually have the ordinary and qualified dividends split up for you. However, understanding the difference is great because it can help you and a qualified accountant plan your taxes more effectively.