Form 1099-DIV: Dividends and Distributions (2018) – Complete Guide

Understanding your Form 1099-DIV doesn't have to be complicated. This guide breaks down everything you need to know about reporting dividend income from your investments in 2018, using information straight from the IRS.

What Form 1099-DIV Is For

Form 1099-DIV is the tax document you receive when you earn money from investments without actually selling them. Think of it as a receipt showing all the dividend payments and distributions you received during 2018 from stocks, mutual funds, or other investments.

Your bank, brokerage firm, or investment company sends you this form if you received at least $10 in dividends or other distributions during the year. The form reports several types of investment income: ordinary dividends (the regular payments companies make to shareholders), qualified dividends (special dividends that get better tax treatment), capital gain distributions (profits from mutual funds selling investments), and various other distributions.

The payer—your brokerage or investment company—sends one copy to you and another to the IRS, so the government already knows about this income. That's why it's essential to report every Form 1099-DIV you receive, even if the amounts seem small. IRS

When You’d Use Form 1099-DIV

You'll use Form 1099-DIV when preparing your 2018 tax return, which was originally due April 15, 2019. You should have received your Form 1099-DIV by January 31, 2019, giving you plenty of time to file.

If you're filing a late return for 2018, you still need to include all your Forms 1099-DIV, regardless of when you file. The IRS already has this information, and omitting it could trigger penalties or an audit.

Sometimes investment companies discover errors and send corrected Forms 1099-DIV. If you receive a corrected form after already filing your tax return, you'll need to file an amended return using Form 1040-X. Check the "CORRECTED" box at the top of the form—if it's marked, compare it carefully with your original form to see what changed.

You might also need to reference your 2018 Form 1099-DIV years later if you're amending returns, responding to IRS inquiries, or calculating your cost basis when you eventually sell the investments. Keep these forms for at least three years after filing, though seven years is safer. IRS

Key Rules or Details for 2018

The 2018 tax year introduced an important new feature: Box 5 for Section 199A dividends. This was a brand-new box created by the Tax Cuts and Jobs Act, reporting dividends that might qualify for a 20% qualified business income deduction. If you have an amount in Box 5, you'll need to consider it when completing your Form 1040.

Another critical 2018 rule involves holding periods for qualified dividends. For a dividend to qualify for the lower capital gains tax rates (instead of your regular income tax rate), you must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Your investment company determines this for you, but it's why Box 1b (qualified dividends) is often smaller than Box 1a (total ordinary dividends).

Money market fund distributions and short-term capital gains from mutual funds are treated as ordinary dividends, not interest, even though they might seem like interest payments. This surprises many taxpayers who assume money market accounts generate interest income.

The foreign tax credit rules are particularly important if you have international investments. Any foreign taxes shown in Box 7 can potentially be claimed as either a deduction or a credit on your tax return, potentially saving you money. However, if you're receiving dividends from a regulated investment company (RIC), the foreign country information is handled differently than direct foreign investments. IRS

Step-by-Step (High Level)

Step 1: Gather all your Forms 1099-DIV.

If you have multiple investment accounts, you'll receive separate forms from each institution. Don't start your tax return until you have them all, typically by mid-February.

Step 2: Review each form for accuracy.

Check that your name, Social Security number, and address are correct. Verify the amounts match your records. If you spot errors, contact the payer immediately to request a corrected form.

Step 3: Understand what each box means.

Box 1a shows your total ordinary dividends—this is taxable income you must report. Box 1b shows the portion that qualifies for preferential tax rates. Box 2a reports capital gain distributions from mutual funds or real estate investment trusts (REITs). Box 3 shows nondividend distributions, which aren't immediately taxable but reduce your cost basis in the investment.

Step 4: Transfer information to your tax return.

The ordinary dividends from Box 1a go on your Form 1040. If the total is over $1,500, you'll also need to complete Schedule B. Qualified dividends from Box 1b receive special treatment—they're taxed at capital gains rates rather than your ordinary income rate, which can save significant money.

Step 5: Handle special situations.

If Box 4 shows federal income tax withheld (backup withholding), make sure to claim this as a credit on your return. If Box 7 shows foreign taxes paid, you may be able to claim a foreign tax credit. New for 2018, if Box 5 shows Section 199A dividends, you'll need to consider these when calculating your qualified business income deduction.

Step 6: Keep your documentation.

File all Forms 1099-DIV with your tax return paperwork. You'll need these if the IRS has questions or if you need to amend your return later. IRS

Common Mistakes and How to Avoid Them

Mistake #1: Not reporting all Forms 1099-DIV.

Some taxpayers think small amounts don't matter, but the IRS receives copies of every form. If you omit even a $15 dividend, their computers will notice the mismatch. Solution: Create a checklist of all your investment accounts and verify you've received a form from each one.

Mistake #2: Confusing Box 1a and Box 1b.

Box 1a is the total dividend, while Box 1b is the qualified portion already included in 1a. Adding them together means you're double-counting income. Solution: Report Box 1a as ordinary dividends, then separately note Box 1b for the qualified dividend calculation—don't add them.

Mistake #3: Forgetting about reinvested dividends.

If you automatically reinvest dividends to buy more shares, you still owe taxes on them. Many people forget this because they never saw the cash. Solution: Your Form 1099-DIV includes reinvested dividends—just report what the form shows, whether you received cash or not.

Mistake #4: Misunderstanding nondividend distributions in Box 3.

These aren't immediately taxable, but they're not tax-free either. They reduce your cost basis, meaning you'll owe more taxes when you eventually sell the investment. Solution: Keep a record of Box 3 amounts to adjust your cost basis. If Box 3 eventually reduces your basis to zero, future distributions become taxable capital gains.

Mistake #5: Losing track of corrected forms.

Investment companies sometimes issue corrected 1099-DIVs in March or even April, after you've already filed. Solution: Wait until at least mid-February before filing, and monitor your investment accounts for notices. If you receive a corrected form after filing, file Form 1040-X promptly.

Mistake #6: Ignoring the new Section 199A dividends.

The 2018 tax law created this new category, and many taxpayers missed potential deductions because they didn't understand Box 5. Solution: If Box 5 has an amount, consult the Form 1040 instructions or a tax professional about the qualified business income deduction.

Mistake #7: Incorrect nominee reporting.

If you receive a Form 1099-DIV that includes amounts belonging to someone else (like in a joint account), you're considered a "nominee" and need to issue Forms 1099-DIV to the actual owners. Solution: If you're holding investments for others, understand your reporting obligations or consult a tax professional. IRS

What Happens After You File

Once you file your tax return with the Form 1099-DIV information included, the IRS matches what you reported against the forms they received from your investment companies. This matching process typically happens several months after you file, usually in the summer or fall.

If everything matches, you'll likely hear nothing—that's good news. The IRS processes your return normally, and if you're due a refund, you'll receive it according to the normal timeline (usually within 21 days for e-filed returns).

If there's a mismatch, you'll receive a notice from the IRS, typically a CP2000 or similar letter. This isn't technically an audit, but it's an automated underreporter inquiry. The notice will explain what income the IRS believes you didn't report and propose additional tax, interest, and possibly penalties. You'll have an opportunity to respond—either agreeing with the proposed changes or explaining why the IRS information is incorrect.

The most common reason for these notices is simply missing a Form 1099-DIV. Less commonly, you might receive a form the IRS didn't get, or there might be legitimate discrepancies. If you receive such a notice, respond promptly—typically within 30 days—with either payment or an explanation and supporting documents.

For future years, remember that your 2018 Form 1099-DIV might also affect your taxes in later years. The cost basis information, particularly nondividend distributions, carries forward and affects capital gains calculations when you eventually sell the investments. IRS

FAQs

Q: Do I need to report a Form 1099-DIV if the amount is very small, like $5?

A: If you received a Form 1099-DIV, you must report it regardless of the amount. The IRS already has a copy, and their computers will flag any missing forms. However, investment companies are only required to send you a form if you received at least $10 in dividends—so if you didn't receive a form, you likely don't need to report tiny amounts.

Q: What's the difference between ordinary dividends and qualified dividends, and why does it matter?

A: Both are reported in Box 1a as ordinary dividends, but qualified dividends (shown in Box 1b) are taxed at the lower capital gains rates instead of your regular income tax rate. For 2018, qualified dividend rates were 0%, 15%, or 20% depending on your income, while ordinary income rates went as high as 37%. This distinction can save you significant money. Your investment company determines which dividends are qualified based on holding period requirements and the type of investment.

Q: I received a Form 1099-DIV from a money market account. Isn't that interest, not dividends?

A: Money market funds are technically mutual funds, so their distributions are reported as dividends on Form 1099-DIV rather than as interest on Form 1099-INT. It's counterintuitive, but that's how the tax code works. Just report what's on the form—the IRS expects to see it on your return as dividend income.

Q: What if I sold the investment before receiving the Form 1099-DIV?

A: You still owe taxes on dividends earned while you owned the investment, even if you sold it before year-end. The Form 1099-DIV reports dividends paid during 2018, regardless of whether you still own the investment. Report the form normally on your tax return.

Q: Can I deduct investment expenses shown in Box 6?

A: Box 6 shows your share of certain investment expenses from nonpublicly offered mutual funds. This amount is already included in Box 1a, meaning you're paying tax on it. Prior to 2018, these were potentially deductible miscellaneous itemized deductions, but the Tax Cuts and Jobs Act suspended this deduction for 2018 through 2025. You still must report the income from Box 1a, but you cannot deduct the Box 6 expenses on your 2018 return.

Q: I received a corrected Form 1099-DIV after filing my tax return. What should I do?

A: If the corrections change your tax liability, you need to file an amended tax return using Form 1040-X. Compare the corrected form with the original carefully to identify what changed. If the change is tiny and doesn't affect your tax owed, some taxpayers skip amending, but technically you should file the amendment. If the change is significant, definitely file Form 1040-X promptly to avoid interest and penalties.

Q: My Form 1099-DIV shows foreign tax in Box 7. How do I claim this on my return?

A: You have two options: claim the foreign tax as an itemized deduction on Schedule A, or claim it as a foreign tax credit using Form 1116. The credit is usually more beneficial because it reduces your tax dollar-for-dollar, while a deduction only reduces your taxable income. However, Form 1116 is complex. For small amounts (under $300 for single filers or $600 for joint filers), you may be able to claim the credit without filing Form 1116—check the Form 1040 instructions for details. IRS

This summary is based on official IRS instructions and forms for tax year 2018. For your specific situation, consult a qualified tax professional or refer to the complete instructions at IRS.gov/Form1099DIV.

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