Dividends and Distributions: What if the mutual fund I own invested in foreign securities?
If you own a mutual fund that invested in foreign securities, the mutual fund may have paid taxes to a foreign country as a result of owning those securities. Form 1099-DIV reports the gross amount of the dividend and the amount of foreign tax. Refer to IRS Publication 514, Foreign Tax Credit for Individuals and the instructions for Form 1040, Schedule A (Itemized Deductions) and Form 1116, Foreign Tax Credit.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: Where are foreign tax withheld amounts reported?
The amount of foreign tax withheld from dividends is reported on Form 1099-DIV. The IRS does not require reporting of foreign tax withheld on gross proceeds and substitute payments in lieu. Refer to IRS Publication 514, Foreign Tax Credit for Individuals and the instructions for Form 1040, Schedule A (Itemized Deductions) and Form 1116, Foreign Tax Credit. Please consult your tax advisor for further guidance.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax Reporting: Foreign Tax Withholding
Foreign taxes are withheld on foreign stocks even though the shares are trades and were purchased on a US stock exchange. They are withheld at the source (company) level and remitted to the foreign government, much like US withholding taxes. US taxpayers may receive a tax credit for these foreign taxes on their US Tax returns. Consult your tax professional and refer to IRS Publication 514 “Foreign Tax Credit for Individuals” for more information on this subject.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax Reporting: Return of Capital (ROC)
Return of Capital (ROC) is a distribution paid to fund shareholders in excess of a fund's current and accumulated earnings and profits. An ROC distribution is generally nontaxable and reduces a shareholder's cost basis in the investment. If an ROC distribution exceeds a shareholder's cost basis, then any additional amount is treated as a capital gain.
Refer to IRS Publication 551, Basis of Assets for further information.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax Reporting: Dividends/Payments in Lieu
Substitute payments, such as dividends on securities that you have loaned to others, are reported in Box 8 on Form 1099-MISC.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: Payments in Lieu of Dividends
If Interactive Brokers lends out your stock or securities, you do not receive dividends (or interest), but payments in lieu of dividends (or interest). For example, IBKR “loans” stock for use in a short sale transaction to another account and receives substitute dividend payments on your behalf paid while the short position was open. Because you are not receiving the dividend directly, you receive a payment in lieu. Refer to Publication 550, Investment Income and Expenses, for more information.
Circular 230 Notice: These statements are provided for information purposes only, are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local or other tax statutes or regulations, and do not resolve any tax issues in your favor.
Tax: Dividends and Distributions: Reporting Long-Term Capital Gains Distributions from Mutual and Exchange Traded Funds (ETFs)
Long-term capital gain distributions are reported on Form 1099-DIV in Box 2a (total capital gain distributions).
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: Short-term capital gains distributions from mutual funds and exchange traded fund (ETFs)
Short-term capital gain distributions from mutual funds and exchange traded funds (ETFs) are classified as ordinary dividends and reported on your Form 1099-DIV.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: Dividend Reclassification
IBKR will amend and re-issue Form 1099 if a dividend is reclassified or reported as an ordinary dividend and later reclassified by the issuer as a capital gain or qualified dividend. The tax character of the dividend indicates whether the dividend is from taxable or tax-exempt income or is a short-term or long-term gain. You will receive an email notification if there has been a change to Form 1099, and an amended form will be posted in Client Portal and resubmitted to the IRS. Consult your tax advisor for further guidance.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
Tax: Dividends and Distributions: Why is there a difference between my activity statements and what is reported to the IRS on Form 1099?
Form 1099 reporting may result in a disparity between what appears on your monthly and yearly activity statements and what is reported on your Form 1099. For example, transactions reported on Form 1099 must be reported on the trade date. Your activity statements may reflect transactions based on the settlement date. In addition, unlike dividends from individual securities which are taxed in the year dividends are paid, mutual fund distributions declared as payable to shareholders of record in October, November or December and paid in January of the following year are taxable to shareholders based on the record date, and not the payment date. Mutual fund distributions with a December record date and paid in January 2, are reported and taxed as dividend distributions in the year they were declared.
If you invested in a Widely Held Fixed Investment Trust (WHFIT), amounts reported on your Form 1099 may be different from what you received in cash. Trustees and middlemen are required to report the gross amount attributable to the trust income holder. Since a WHFIT is treated as a grantor trust, reporting requirements are based on how and when the income was received by the trust entity, rather than how and when it was paid out to you. WHFIT tax information statements are furnished to the trust income holder and may result in a revised Form 1099. WHFIT tax information statements will be available by March 15 for the previous tax year. View and print the statement by logging in to Client Portal and selecting Reports > Tax menu item.
Refer to IRS Publication 564, Mutual Fund Distributions, Publication 550, Investment Income and Expenses, and consult your tax advisor.
In compliance with Treasury Department Circular 230, unless stated to the contrary, any information contained in this FAQ was not intended or written to be used and cannot be used for the purpose of avoiding tax penalties that may be imposed on any taxpayer.
