My daughter is my dependent and receives dividend income. Does she need to file a federal income tax return?

A federal income tax return usually must be filed for a child whose investment income, such as interest and dividends, totals more than $750. For more information, refer to Tax Topic 351, Who Must File. There are special rules that affect the tax on certain investment income of a child under age 14. For more information, refer to Tax Topic 553, Tax On A Child's Investment Income, or Publication 929, Tax Rules for Children and Dependents.

References:

• Publication 929, Tax Rules for Children and Dependents
• Tax Topic 351, Who Must File
• Tax Topic 553, Tax on a child's investment income

How do I report this 1099-DIV from my mutual fund?

Enter the ordinary dividends from Form 1099-DIV (PDF), box 1, on line 9 of Form 1040 (PDF), U.S. Individual Income Tax Return. Enter the total capital gain distributions from box 2a on line 13, column (f) of Form 1040, Schedule D (PDF). Enter the 28% rate gain portion of your capital gain distributions from box 2b on line 13, column (g) of Schedule D. If you have an amount in box 2c or box 2d, refer to Instructions for Form 1040, Schedule D. Nontaxable distributions, box 3, that are return of capital distributions, reduce your cost basis and are not taxable until your basis is reduced to zero. If no amount is shown in boxes 2b through 2d, and your only capital gains and losses are capital gain distributions, refer to Instructions for Form 1040 for line 13.

References:

• Form 1040, Schedule D (PDF), Capital Gains and Losses
• Instructions for Form 1040
• Instructions for Form 1040, Schedule D

I received dividends from my credit union. How do I report this income?

Certain distributions commonly referred to as dividends are actually interest. They include "dividends" on deposits or share accounts in cooperative banks, credit unions, domestic savings and loan associations, and mutual savings banks.

Report interest income on line 8a of Form 1040 (PDF) or Form 1040A (PDF), or line 2 of Form 1040EZ (PDF). If your taxable interest income is more than $1,500, be sure to show that income on Schedule B of Form 1040, or on Schedule 1 of Form 1040A. You cannot file Form 1040EZ if your interest income is more than $1,500. Refer to Tax Topic 403, Interest Received, for additional information on interest income.

References:

• Form 1040 (PDF), U.S. Individual Income Tax Return
• Form 1040A (PDF), U.S. Individual Income Tax Return
• Form 1040EZ (PDF), U.S. Individual Income Tax Return for Single and Joint Filers with No Dependents
• Tax Topic 403, Interest Received

If my children have mutual funds, how are the dividends and capital gains reported?

If a child is 14 years old or older and has a requirement to file an income tax return, he or she would report dividends and capital gains no differently than any other taxpayer. If the child is under age 14 and his or her only income is from interest and dividends (including capital gain distributions), the child's parents can make an election to include the income on the parent's return. If the parents make this election, then the child does not have to file a return. The election is made on Form 8814 (PDF), Parent's Election To Report Child's Interest and Dividends.

In order to make the election under Form 8814,

the child must be required to file a return,

the dividend and interest income cannot exceed $7,500

there must be no estimated tax payment made for the year and no prior overpayment applied to the tax year under the child's name and social security number,

there must be no federal tax taken out of the child's income under the backup withholding rules, and

the parent must be the parent whose return is used for the special tax rules for children under 14.

If a child under the age of 14 has investment income and the parents do not make the above election, the child reports the income as any other taxpayer would. Special rules on how the investment income is taxed, however, may apply. A child under the age of 14 with investment income (interest, dividends, capital gains, etc.) of more than $1,500 may be subject to the parents' tax rate. The special tax computation is figured on Form 8615 (PDF), Tax for Children Under Age 14 Who Have Investment Income of More Than $1,500.

For more information, refer to Publication 929, Tax Rules for Children and Dependents

References:

• Form 8814 (PDF), Parent's Election To Report Child's Interest and Dividends
• Form 8615 (PDF), Tax for Children Under Age 14 Who Have Investment Income of More Than $1,400
• Publication 929, Tax Rules for Children and Dependents

I have both purchased and sold shares in a money-market mutual fund. The fund is managed so the share price is constant. All gain is reported as dividends. Do I have to report the sale of these shares?

Yes, you report the sale of your shares on Form 1040, Schedule D (PDF), Capital Gains and Losses. Generally, whenever you sell, exchange, or otherwise dispose of a capital asset, you report it on Schedule D.

If the share price were constant, you would have neither a gain nor a loss when you sell shares because you are selling the shares for the same price you purchased them.

If you actually owned shares that were later sold, the fund or the broker should have issued a Form 1099-B There is no requirement with that form that there be gain or loss on the sale, only a sale or exchange of an investment asset and sales proceeds.

References:

• Publication 564, Mutual Fund Distributions

Do the dividends and/or capital gains I report affect my cost basis of the individual mutual fund shares I own?

They would affect your total basis and total number of shares if they were reinvested in the mutual fund. Add the reinvested dividends and capital gains that you have reported as income on your tax return to your total basis. You will also own additional shares in the fund because the dividends and capital gains have been used to purchase shares. Keep good records. If you are going to be using an average basis method to determine per-share basis on sales, be sure and keep records of all your mutual fund activity until you no longer own any shares in that fund.

There is a worksheet to help you keep track of your number of shares and your basis in Publication 564, Mutual Fund Distributions.

References:

• Publication 564, Mutual Fund Distributions

My end-of-year statement from a mutual fund company showed amounts in 4 categories: (1) capital gains, (2) short-term capital gains, and (3) ordinary dividend and (4) qualified dividends. When my 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 (PDF) .

Box 1b of your Form 1099-DIV shows the portion of the amount in box 1a that may be eligible for the new 15% or 5% capital gain rates. See the Instructions for Form 1040 and Instructions for Form 1040A for how to determine the eligible amount and report this amount on line 9b of your, Form 1040 (PDF) Form 1040A (PDF) .

The short-term capital gains will be in box 1a "ordinary dividends" on 1099-DIV. These will be reported on line 9a of 1040/1040A.

Report the fund's 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 (PDF), Interest & Dividend Income or Form 1040A, Schedule 1 (PDF), Interest and Ordinary Dividends . Refer to the instructions to the schedule.)

References:

• Publication 564, Mutual Fund Distributions

How can I use mutual fund short-term capital gains, which are reported on Form 1099-DIV in Box 1a as "Ordinary Dividends," to help offset short-term capital losses?

You cannot. You did not sell the assets that produced this income, the mutual fund did. All income that is taxed as ordinary income flows through to you as ordinary dividends, whether the income is from interest, dividends, or the sales of short-term capital assets.

In the same manner, you report capital gain distributions as long-term capital gains on your return regardless of how long you have owned the shares in the mutual fund. This is because the asset was held and then sold by, the mutual fund, not by you.

Report your total ordinary dividends (including the short-term capital gains in your mutual fund) on Form 1040, line 9a, or Form 1040A, line 9a, with your other ordinary dividends, if any. You may also have to file Form 1040, Schedule B (PDF) , Interest & Dividend Income or Form 1040A, Schedule 1 (PDF), Interest and Ordinary Dividends.

References:

• Tax Topic 409, Capital gains and losses
• Publication 550, Investment Income and Expenses

How do you list gains from mutual funds on Schedule D and Form 1040 when some mutual funds list short-term capital gains separately and others lump short-term capital gains and taxable dividends together as dividends?

Only the capital gain distributions are reported on Form 1040, Schedule D (PDF), Capital Gains and Losses . They are reported in Part II as long-term capital gains. Short-term capital gains are taxed as ordinary income and are therefore treated as ordinary dividends on Form 1099-DIV. They are reported on line 9a of Form 1040 (PDF) or Form 1040A (PDF).

Because many mutual fund companies send out annual fund statements as well as Forms 1099-DIV, or "consolidated statements," some confusion has arisen regarding short-term capital gains. The purpose of Form 1099-DIV is to provide you with information to report income correctly on your tax return.

The annual report often breaks down the income from fund activity as dividends, tax-exempt dividends, short-term capital gains, long-term capital gains, returns of capital, and undistributed capital gains. Form 1099-DIV, on the other hand, will show only ordinary dividends (which includes the fund's short-term capital gains), capital gain distributions, and returns of capital (nontaxable distributions), and qualified dividends.

Mutual fund companies may combine the annual fund information with the Form 1099-DIV information into a consolidated statement. If this is what you receive, look for the part of the statement identified as the Form 1099-DIV or that contains language such as "in lieu of Form 1099-DIV."

References:

• Tax Topic 409, Capital gains and losses
• Publication 564, Mutual Fund Distributions

If a mutual fund's assets earned tax-free dividends, are capital gains tax free when the fund is sold?

No. The kind of income the assets in the fund earn is tax-free. When you sell your shares in the fund, a taxable gain or deductible loss is realized on the sale. This is the true also for the sale of tax-exempt securities such as municipal bonds.

References:

• Tax Topic 409, Capital gains and losses
• Publication 564, Mutual Funds Distribution

I am a nonresident alien and invested money in U. S. stock market through a U.S. brokerage company. Are the dividends and the capital gains taxable? If yes, how are they taxed?

Generally, capital gains received by a nonresident alien not present in the United States for 183 days or more are not taxable in the United States. Certain gains, however, are subject to the 30% withholding rate or if applicable, a reduced tax treaty rate on the gross amount of the following items:

1. Gains on disposal of timber, coal, or domestic iron ore with a retained economic interest, unless an election is made to treat those gains as income effectively connected with a U.S. trade or business,

2. Gains on contingent payments received from the sale or exchange after October 4, 1966, of patents, copyrights, secret processes and formulas, goodwill, trade marks, trade brands, franchises, and other sale property,

3. Gains on certain transfers of all substantial rights to, or an undivided interest in, patents if the transfers were made before October 5, 1966, and

4. Certain gains from the sale or exchange of original issue discount obligations issued after March 31, 1972.

Dividends are withheld upon at the 30% or lower tax treaty rate. If your withholding is not at the correct rate, a nonresident alien should file Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return , to claim a refund of excess withheld taxes.

References:

• Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entity
• Publication 519 U.S. Guide for Aliens
• Publication 597, Information on the United States-Canada Income Tax Treaty
• Publication 901, U.S. Tax Treaties
• Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return
• Form 1040NR-EZ (PDF) U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents

I am a nonresident alien. Our broker withholds 30% tax on dividends. Can I get this tax back since I already owe tax in my residence country on overseas income?

Generally, this type of income paid to nonresident aliens is taxable at the 30% or lower treaty rate. If your country has a tax treaty with the U.S., you may have a reduced rate of tax. If that is the case, you should file Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return, to claim a refund of federal income taxes withheld. To avoid future excess withholding, provide your broker with a completed Form W-8BEN (PDF) , Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding. You may be entitled to a credit against the tax you owe to your residence country for the U.S. tax that is withhold from your dividends.

References:

• Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities
• Publication 901, U.S. Tax Treaties
• Form 1040NR (PDF), U.S. Nonresident Alien Income Tax Return
• Instructions for Form 1040NR, U.S. Nonresident Alien Income Tax Return
• Form 8833 (PDF), Treaty Based Return Position Disclosure Under Section 6114 or 7701 (b)
• Form W-8BEN (PDF) , Certificate of Foreign Status of Beneficial Owner for U.S. Tax Withholding