Investor Services

FREQUENTLY ASKED TAX QUESTIONS


1)How can I have errors on my 1099 changed?

If the error is a bad Social Security Number, the shareholder must submit a form W-9 with the correct SSN and a copy of the 1099 that contains the error. If you believe the amount of your 1099 to be in error, we will verify the amount upon request in the form of a "write-up", showing you how the reporting occurred.

2)Why was tax withheld?

Your Social Security or Tax ID Number may not be certified; residence code may be incorrect; tax withheld may be from a dividend payment.

3)What is a 1099-DIV?

A 1099-DIV reports income paid to you from dividends on amounts of $10 or more.

4)Do I have to pay tax on reinvested dividends?

Dividend reinvestment plans let you choose to use your dividends to buy (through an agent) more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan and use your dividends to buy more stock at a price equal to its fair market value, you must report the dividends as income. If you are a member of a dividend reinvestment plan that lets you buy more stock at a price less than its fair market value, you must report as income the fair market value of the additional stock on the dividend payment date. Other rules may apply. For additional information, refer to Chapter 9 of Publication 17, Your Federal Income Tax, and Tax Topic 404, Dividends.

5)My end-of-year statement from a mutual fund company showed amounts in 3 categories: (1) capital gains, (2) short-term capital gains, and (3) ordinary dividends. When Form 1099-DIV came, the short-term capital gains were lumped in with ordinary dividends. Which is correct and where do I list the short-term capital gains?

Your Form 1099-DIV is correct, but so is your annual statement. For the purpose of reporting taxable income on your tax return, capital gain distributions are defined as long-term capital gains only. Short-term capital gains are taxed as ordinary income and are therefore treated as ordinary dividends on Form 1099-DIV. Report your short-term capital gains as part of your total ordinary dividends on line 9 of your Form 1040 or 1040A. (You may have to also report them on Form 1040, SCHEDULE B, Interest & Dividend Income or Form 1040A, SCHEDULE 1, Interest and Ordinary Dividends. Refer to the instructions to the schedule.)

6)I sold my shares at the beginning of last year. Why did I receive a 1099-DIV?

You may have been paid one last dividend on the shares held in the account and the record date may have been prior to the sale.

7)What is a 1099-B?

Reports proceeds of $20 or more from the sale or exchange of securities.

8)I purchased stock from my employer under an employee stock purchase plan. Now I have received a From 1099-B from selling it. How do I report this?

If the special holding periods are met, generally treat gain or loss from the sale of the stock as capital gain or loss. However, you may have ordinary income if:

  1. The option price of the stock was below the stock's fair market value at the time the option was granted, or
  2. You did not meet the holding period requirement, explained next.

You must hold the stock for more than 2 years from the time the stock option is granted to you and for more than 1 year from when the stock was transferred to you. If you meet the holding period requirement and the option price was below the fair market value of the stock at the time the option was granted, you report the difference as ordinary income (wages) when you sell the stock. However, this ordinary income cannot be more than your gain on the sale. If your gain is more than the amount you report as ordinary income, the remainder is a capital gain reported on Form 1040, SCHEDULE D. If you sell the stock for less than the option price, your loss is a capital loss. For more information, refer to Publication 525, Taxable and Nontaxable Income, and Publication 551, Basis of Assets.

9)Why didn't I get my 1099-B reflecting my sale of shares?

If certificates were sold through a broker, the broker sends the 1099-B to the recipient. Note: A 1099-B is only issued for proceeds amounts of $20 or more. If Dividend Reinvestment shares were sold, you must verify your address and request that a duplicate 1099-B be mailed to you.

10)How do we show on our tax form where dividends are reinvested?

Some corporations allow investors to choose to use their dividends to buy more shares of stock in the corporation instead of receiving the dividends in cash. If you are a member of this type of plan, you must report the fair market value on the dividend payment date of the dividends that are reinvested as income on your tax return. You do not actually show that the dividends were reinvested on your return. Keep good records of the dollar amount of the reinvested dividends, the number of additional shares purchased, and the purchase dates. You will need this information when you sell the shares. Report the dividends that were reinvested with your other dividends, if any, on line 9 of Form 1040 or Form 1040A. If your total income from ordinary dividends is over $400, you also must file either Schedule B (Form 1040) or Schedule 1 (Form 1040A). For more information on this and other types of dividend reinvestment plans, refer to Ordinary Dividends in Chapter 1 of Publication 550, Investment Income and Expenses.

11)How do I compute the basis for stock I sold, when I received the stock over several years through a dividend reinvestment plan?

The basis of the stock you sold is the cost of the shares plus any adjustments, such as sales commissions. If you have not kept detailed records of your dividend reinvestments, you may be able to reconstruct those records with the help of public records from sources such as the media, your broker, or the company that issued the dividends. If you cannot specifically identify which shares were sold, you must use the first-in first-out rule. This means that you deem that you sold the oldest shares first, then the next oldest, then the next to the next oldest, until you have accounted for the number of shares in the sale. In order to establish the basis of these shares, you need to have kept adequate documentation of all your purchases, including those that were through the dividend reinvestment plan. You may not use an average cost basis. Only mutual fund shares may have an average cost basis. Refer to Publication 550, Investment Income and Expenses, and Publication 551, Basis of Assets.

12)Do I have to pay taxes again on the stock acquired through a dividend reinvestment plan when I sell them?

After you report the dividends as income, you have basis in the shares acquired through dividend reinvestment. When you report the sale of the shares, you will be taxed only on the amount that the sales proceeds (minus commissions) exceed your cost basis (in this case, the amount of the dividends reinvested).

13)Why do I have to pay taxes on the fees and discounts applicable to DR accounts?

Fees and commissions that are paid for by the company are considered to be income by the IRS (money saved is money earned). Likewise, money saved because shares were purchased with a discount is also reportable as income.

14)I was enrolled in Dividend Reinvestment for the entire year; why did I receive a 1099-DIV?

IRS regulations state that dividends that are reinvested are treated as if they were paid to the recipient in cash.