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| Tax School Homepage |
| Dividends |
| Dividends are distributions of property a corporation pays you because you own stock in that corporation. For the most part, dividends are taxable in the same manner as interest income is taxable. Also, you use the same Schedule B to report dividend amounts on your tax return. Dividends may be paid in cash, stock of another corporation and any kind of property such as interest in a partnership. |
| A shareholder of a corporation may be deemed to receive a dividend if the corporation pays the debt of its shareholder or if the shareholder receives services from the corporation. A shareholder of a corporation may also be deemed to have received a dividend if the shareholder is allowed the use of the corporation's property. A shareholder that provides services to a corporation may be deemed to receive a dividend if the corporation pays the shareholder service-provider in excess of what it would pay a third party for the same services. You should receive a Form 1099-DIV, Dividends and Distributions, from each payer for distributions of at least $10. |
| If you receive dividends through a partnership, an estate, a trust, or a subchapter S corporation, you should receive a Schedule K-1 from that entity indicating the amount of dividends taxable to you. Dividends are the most common type of distribution from a corporation. They are paid out of the earnings and profits of the corporation and can either be classified as ordinary or qualified. |
| A return of capital is a return of some or all of your investment in the stock of the company, reduces the basis of your stock and the corporation making the distribution does not have any accumulated or current year earnings and profits. A capital gain distribution may be paid by regulated investment companies (e.g. mutual funds, exchange traded funds, money market funds, etc.) and real estate investment trusts (REITs) and are always reported as long-term. You must give your correct social security number to the payer of your dividend income. If you do not, you may be subject to a penalty and also could be backup withholding. |
| Refund Offsets |
| The Department of Treasury's Bureau of Fiscal Service (BFS), which issues IRS tax refunds, has been authorized by Congress to conduct the Treasury Offset Program (TOP). Thus, through this Treasury Offset Program (TOP), your refund or overpayment may be reduced by BFS and offset to pay Past-due child support and other federal agency non-tax debts. Also, TOP is used to offset state income tax obligations and certain unemployment compensation debts owed to a state for compensation that was paid due to fraud or for contributions owing to a state fund that were not paid due to fraud. BFS will send you a notice if an offset occurs. The notice will reflect the original refund amount and the your offset amount. You will receive amongst other things, the name, address and the telephone number of the agency receiving your money. |
| Self-Employed Individuals |
| Generally, you are self-employed if you carry on a trade or business as a sole proprietor or an independent contractor. You are also self-employed is you are member of a partnership that carries on a trade or business. Most self employed individuals are in business for themselves such as when they own a retail establishment. Additionally, as a self-employed individual, generally you are required to file an annual tax return and to pay estimated taxes quarterly. Self employed individuals must pay self-employment tax as well as the normal income tax. Before you can determine if you are subject to self-employment tax and income tax, you must figure your net profit or net loss from your business. You have to file an income tax return if your net earnings from self-employment were $400 or more. |
| Most self-employed individuals must pay estimated taxes. Form 1040-ES, Estimated Tax for Individuals, is used to figure estimated taxes. Form 1040-ES contains a worksheet that is similar to Form 1040. In order to fill out Form 1040-ES correctly you should have your prior year's annual tax return. Form 1040-ES also contains blank vouchers you can use when you mail your estimated tax payments or you may make your payments using the Electronic Federal Tax Payment System (EFTPS). If this is your first year being self-employed you will need to estimate the amount of income you expect to earn for the year. Also, if you estimated your earnings too high, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. Likewise, if you estimated your earnings too low, simply complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter. |
| Copyright © 2014 [Hera's Income Tax School]. All Annual Filing Season Program rights reserved. |
| Revised: 12/14/14 |
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