|
|
|
Frequently Asked Tax Questions And Answers
Keyword: 1099 Information Returns 1.1 IRS Procedures: General Procedural Questions
I recently opened up a new account at the bank, and they asked me
to complete a Form W-9. Is this necessary?
Your investment income is generally not subject to regular withholding.
However, it can be subject to backup withholding to ensure that income tax
is collected on this income.
When you open up a new account, you must certify under penalties of perjury
that your social security number is correct and that you are not subject to
backup withholding. Form W-9 (PDF), Request
for Taxpayer Identification Number and Certification , is used to make
this certification. If you fail to make this certification on Form W-9, or
similar statement, backup withholding will begin immediately on your new account,
and a percentage of the interest paid on your account (29% after December
31, 2003; 28% after December 31, 2005) will be withheld. There are exceptions
to this rule. For additional information on who is subject to backup withholding,
refer to Tax Topic 307.
References:
- Form W-9 (PDF), Request for Taxpayer
Identification Number and Certification
- Tax Topic 307, Backup withholding
4.1 Interest/Dividends/Other Types of Income: 1099–DIV Dividend 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:
4.4 Interest/Dividends/Other Types of Income: 1099 Information Returns (All Other)
I received a Form 1099-G, for my state tax refund.
Do I have to include this amount as income on my return?
I received a Form 1099-G (PDF) , for my state
tax refund. Do I have to include this amount as income on my tax return?
If you did not itemize your deductions on your Federal tax return for the
same year as the state or local tax refund applies to, do not report any of
the refund as income.
If you itemized deductions on your Federal tax return for 2002, and received
a refund of state or local taxes in 2002, you may have to include all or part
of the refund as income on your 2003 tax return. Report your taxable State
or Local Refunds on Form 1040, Line 10. You cannot use Form 1040A or 1040EZ.
Refer to Tax Topic 405, Refund of State and Local Taxes , and Publication 525 , Taxable and Nontaxable Income , for further
information.
References:
My house was foreclosed on and the lender has sent me a Form 1099.
What do I do? Must I report this?
You may have received either a Form 1099-A (PDF), Acquisition
or Abandonment of Secured Property, or Form 1099-C (PDF), Cancellation of Debt, or both. You may not have to
report gain on the sale of property and, depending on the circumstances, you
may have cancellation of indebtedness as well. You have cancelled debt income
if the debt cancelled, as a result of the foreclosure and it exceeds the fair
market value of the property at the time of he transfer. Cancelled debt income
is taxable as other income on line 21 (other income) of Form 1040 (PDF). Refer to Publication 544, Sales and Other
Disposition of Assets. Complete Table 1-2, Worksheet for Foreclosure
& Repossessions to determine if there is income from cancellation of debt
or gain or loss from foreclosure or repossession.
You may be able to exclude all or part of the cancelled debt income if
all or part of the debt was discharged in bankruptcy; if you were insolvent
immediately before the transfer; or if the debt is a qualified farm debt or
qualified real property indebtedness. Refer to Publication 908, Bankruptcy
Tax Guide.
You may be required to compute gain on the disposition of the property
and, under certain circumstances, may be eligible to claim a loss as well.
The tax treatment of he disposition may be affected by whether the debt was
recourse or nonrecourse.
If the debt was nonrecourse (you were not personally liable for payment),
the amount realized for purposes of computing gain is the sum of the amount
of money received, the fair market value of any other property received incident
to the transfer of the property subject to foreclosure, and the amount of
any nonrecourse debt on the property. The difference between the amount realized
and your basis is your gain or loss. No portion of the gain on property subject
only to nonrecourse debt is income from discharge of indebtedness.
If the debt was recourse (you could have been held personally liable for
payment), the proper treatment depends on the amount of the debt and whether
you were discharged as a result of the transaction. If the debt was less than
the fair market value of the property, the amount realized is equal to the
sum of the amount received and the fair market value of any other property
received incident to the transfer of the property subject to foreclosure,
and the amount of any debt discharged as the result of the transaction. On
the other hand, if the debt was more than the fair market value of the property
and it was discharged as result of the transaction, for example, if you gave
the creditor a deed in lieu of foreclosure, then the difference between the
FMV of the property and the amount of the debt up to the FMV of the property
is considered to be the amount realized and the excess debt is considered
to be income from discharge of indebtedness. Your gain or loss would be computed
by the difference between the FMV of the property and your basis; the balance
would be ordinary income reportable on Line 21. If the debt was not discharged
because of the foreclosure and the creditor could collect the difference from
you, there would be no discharge of indebtedness income until such time as
the debt was actually discharged or the statute of limitations expired. In
such case, you might only have to report your gain on the disposition of the
property.
References:
- Publication 523, Selling Your Home
- Publication 537, Installment Sales
- Publication 544, Sales and Other Dispositions of Assets
- Publication 908, Bankruptcy Tax Guide
- Form 982 (PDF), Reduction of
Tax Attributes Due to Discharge of Indebtedness
- Form 1040 (PDF), U.S. Individual
Income Tax Return
- Form 1040, Schedule D (PDF), Capital
Gains and Losses
- Form 1099-A (PDF), Acquisition
or Abandonment of Secured Property
- Form 1099-C (PDF), Cancellation
of Debt
- Form 4797 (PDF), Sales of Business
Property
10.2 Capital Gains, Losses/Sale of Home: Stocks (Options, Splits, Traders)
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 compensation income if:
The option price of the stock was below the stock's fair market value at the time
the option was granted, or
You did not meet the holding period requirement.
The holding period requirement is that you must hold the stock for more than 2
years from the time the stock is granted to you and for more than 1 year from when
the stock was transferred to you. If you do not meet these holding period requirements,
there is a disqualifying disposition of the option. The compensation income that you
should report in the year of the disposition is the excess of the fair market value
of the fair market of the stock on the date the stock was transferred to you less
the amount paid for the shares.
If the holding period requirement is met, but the option price is below the fair
market value of the stock at the time the option was granted, you report the difference
as compensation income (wages) when you sell the stock. Generally, this compensation
income is the lesser of the excess of the fair market value on the date of the disposition
less the exercise price OR the excess of the fair market value of the option when
granted less the exercise price.
If your gain is more than the amount you report as compensation income, the remainder
is a capital gain reported on Form 1040, Schedule D (PDF).
If you sell the stock for less than the amount you paid for it, your
loss is a capital loss, and you do not have ordinary income.
For more information, refer to Publication 525, Taxable and
Nontaxable Income, and Publication 551, Basis of Assets.
References:
Should I advise the IRS why amounts reported on Form 1099-B do not agree
with my Schedule D for proceeds from short sales of stock not closed by the end of
year that I did not include?
If you are able to defer the reporting of gain or loss until the year the short
sale closes, the following will allow you to reconcile your Forms 1099-B to your Schedule
D and still not recognize the gain or loss from the short sale:
Your total of lines 3 and 10, column (d), on your Schedule D should equal your
total gross proceeds reported to you on all Forms 1099-B.
In columns (b) and (c) write "SHORT SALE," and
in column (f) write "See attached statement."
In your statement, explain the details of your short sale and that it has not
closed as of the end of the year. Include your name as it appears on the return and
your social security number.
For more on these rules and exceptions that may apply, refer to Chapter 4 of Publication 550, Investment Income and Expenses.
References:
How do I determine my gain or loss on the proceeds reported on Form 1099-B
from a short sale entered into last year if I have not yet bought the stock to deliver
back to my broker?
In general, you cannot determine your gain or loss until you purchase the stock
that you are going to deliver to close the short sale. You still need to report the
gross proceeds on Schedule D so that the total of lines 3 and 10, column (d), reconciles
with all of your Forms 1099-B.
Also, in columns b and c write "short sale." In column f, write "see attached statement."
In the statement, explain the details of the short sale and that it is not closed.
Include your name as it appears on your return and your social security number.
For more information on rules and exceptions that may apply, refer to Chapter 4
of Publication 550, Investment Income and Expenses.
References:
10.3 Capital Gains, Losses/Sale of Home: Mutual Funds (Costs, Distributions, etc.)
How do I show a return of principal payment from my Form 1099-DIV on my
tax return?
You do not normally have to report a return of principal (or return of capital)
on your tax return. You must reduce your basis in the fund, which should be recorded
in your records. However, basis cannot be reduced below zero. Once your basis reaches
zero, any return of principal is capital gain and must be reported on Form 1040, Schedule D (PDF), Capital Gains and Losses.
References:
I received a 1099-DIV showing a capital gain. Why do I have to report capital
gains from my mutual funds if I never sold any shares?
A mutual fund is a regulated investment company that pools funds of investors allowing
them to take advantage of a diversity of investments and professional asset management.
You own shares in the fund, but the fund owns assets such as shares of stock, corporate
bonds, government obligations, etc. One of the ways the fund makes money for its investors
is to sell these assets at a gain. If the asset was held by the mutual fund for more
than one year, the nature of the income is capital gain, which gets passed on to you.
These are called capital gain distributions, which are distinguished on Form 1099-DIV (PDF) , from income that is from other profits, called
ordinary dividends.
Capital gains distribution are taxed as long term capital gains regardless of how
long you have owned the shares in the mutual fund. If your capital gains distribution
is automatically reinvested, the reinvested amount is the basis of the additional
shares purchased.
References:
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:
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:
11.3 Sale or Trade of Business, Depreciation, Rentals: Personal Use of Business Property (Condo, Timeshare, etc.)
I received income for renting out my timeshare for a week. I understand
that I don't have to report income from any rental less than 15 days, but
the property management company reported that income to the IRS. Do I have
to report it when I file?
If you use the dwelling unit as a home (based on degree of personal use)
and you rent it for fewer than 15 days during the year, do not include any
of the rent in your income and do not deduct any of the rental expenses. If
you do not meet the tests for using your timeshare as your home, the income
is reportable on Form 1040, Schedule E (PDF), Supplemental
Income and Loss.
References:
|
|
|
|