Cash Dividends

In the past, the receipt of cash dividend income in the form of a check or reinvested funds was a fully taxable event.  As such, dividends were treated as another source of ordinary income and were taxed at your normal tax rate. 

However, the Jobs and Growth Tax Relief Reconciliation Act of 2003 changed how some dividends are taxed.  Investors pay lower tax rates on dividends received from domestic corporations and qualified foreign corporations.  The lower rates also apply to dividends passed on to shareholders from a mutual fund that has received qualifying dividends from stock that it holds.  However, the Act did not change the basic character of dividend income: 

Dividends are still considered ordinary income and cannot be offset against net capital losses. Therefore dividends are not reported on scheduled d along with stock and option capital gains and losses.

Companies will send you a Form 1099-DIV to let you know that you received a dividend payment, but will not necessarily indicate if your dividends are qualified or not.  It is up to you to examine carefully the many factors determining which of your dividends qualify as "capital gains" and should therefore receive the lower tax rate.  

One such factor is the holding period.  In order to qualify for the new lower taxes on dividends, an investor is required to hold the stock on which the dividends are paid for more than 60 days during the 120-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the last date on which a shareholder of record is entitled to receive the upcoming dividend.

Dividends must also be received from a domestic corporation or a qualified foreign corporation. A qualified foreign corporation is one that is incorporated in a U.S. possession or is incorporated in a country that has a current tax treaty with the U.S.  Check with the shareholders relations staff at the corporation you're investing in to see if they are treated as a qualified foreign corporation.

Shareholders report qualified dividends to the IRS on Line 9(b) of Form 1040 or 1040A.
The tax is calculated by completing either the Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions.

All ordinary dividends are reported on IRS Form 1040, Line 9(a). 
If dividends were $1,500.00 or less, shareholders may report them on Form 1040, Line 9(a) only;  if more than an $1,500.00, they should also be recorded on Schedule B, Part II.  

Dividends are not reported on the IRS Schedule D form, therefore TradeLog™ does not import or record cash dividends.

Learn More... Stock Dividends and Stock Splits

^{Please note: This information is provided only as a general guide and is not to be taken as official IRS instructions. Armen Computing Ltd. makes no investment recommendations and does not provide financial, tax or legal advice. Please consult your tax advisor or accountant to discuss your specific situation. You are solely responsible for your investment and tax reporting decisions, and you should carefully evaluate all information delivered to you by Armen Computing Ltd. and TradeLog. Not all information may be appropriate for all investors.}

• Capital Gains
• Wash Sales
• IRS Schedule D
• Mark to Market
• Which Form to File?
• Brokerage Reporting
• Common Misconceptions
• Options
• Futures
• Mutual Funds
• Dividends
• Cash Dividends
• Stock Dividends and Stock Splits
• Dividend Reinvestments (DRIPs)
• Stock Spin-Offs and Mergers