Tax season has started, and already, you should have gotten a lot of the forms you need to prepare your return. In particular, if you owned shares of stocks or mutual funds that paid dividends during 2018, then Form 1099-DIV is one of the forms that you should already have received by now -- assuming that the company that paid them to you complied with the deadline of Jan. 31 to get it to you.
Form 1099-DIV isn't all that long, but it can be confusing if you aren't familiar with all the information on the form. To make it easier to understand, here's an explanation of what all the boxes mean and how you can use them in preparing your taxes.
Basic information along the left
The entire left side of the form is taken up giving information about the paying entity as well as about you as the recipient of the interest income. Name, address, tax identification numbers, and account numbers are included. You'll also see boxes that will be checked if the institution has to meet requirements under the Foreign Account Tax Compliance Act, or if the filing is in connection with a notice that you've provided incorrect tax identification information in the past.
Note that if you have a brokerage account, your broker will be the listed as payer. That's the case regardless of the actual stocks and other investments that paid the dividend income.
Where to find your dividend income
For the most part, you can expect to find your dividend information in the following boxes:
- Box 1a has the total of any dividends on stocks you get, as well as distributions of income and net short-term capital gains from mutual funds. Out of the amount in Box 1a, Box 1b shows how much of your dividends will get taxed at the lower tax rate on qualified dividends. This is based on the best information your broker has at the time, but the IRS directs brokers to include dividends for which it's impractical to determine whether you've met the required holding period. If it turns out that you haven't, you'll need to make a manual calculation of your own.
- Long-term capital gains distributions from funds are put in Box 2a. This figure also gets a preferred tax rate, and it includes all the special cases in boxes 2b, 2c, and 2d. Box 2b applies if you sell real property that has been depreciated, with Section 1250 of the Internal Revenue Code requiring you to recapture some past depreciation at a special tax rate. Box 2c includes special gain from qualified small business stock under Section 1202 of the Internal Revenue Code. Box 2d includes long-term gains on collectibles, which have their own maximum tax rate.
- If a company or mutual fund makes payments that are characterized as return of capital, then those amounts show up in Box 3. You don't have to pay tax on them, but you do have to adjust your tax basis to report correct gains later.
Useful numbers that can offset your income or tax
Most of the other boxes provide information that you can use to take deductions or credits from what you have to pay in tax on your dividend income. They include the following:
- Box 4 will show any federal income tax that your bank or broker withheld on your behalf. Be sure to count this amount under the payment section of your tax return to calculate your refund or amount owed correctly.
- Any deductible investment expenses that your financial institution incurred on your behalf will be listed in Box 5.
- Boxes 6 and 7 give vital information on foreign bonds. If you paid tax to the country where the bond was issued, then you can claim the foreign tax credit to try to recover some or all of that tax.
- If a company or fund liquidates, then you might receive a combination of cash, stock, or other investments. Cash will be included in Box 8, and the value of any other assets you receive will show up in Box 9. Taxation of these amounts varies according to the nature of the liquidation.
- Box 10 includes dividends that correspond to interest from tax-exempt issuers including states, municipalities, and U.S. possessions. Certain municipal bonds that have a specified private activity are taxable for alternative minimum tax purposes, and interest from those obligations appears in Box 11.
State tax information
Finally, boxes 12 through 14 have much of the same information you'll find elsewhere on the form, but applied for state income tax purposes. Keep in mind that state treatment of dividends might not be the same as federal law, so these numbers won't always be identical.
Be smart with your dividend info
The IRS gets a copy of your 1099-DIV form, and it'll check your return to make sure the numbers match. To avoid any potential problems, it's important to put the right numbers in the right places -- and mistakes can lead to an audit.