Although I consider myself quite knowledgeable about federal income tax preparation, there is one area that I’ve never quite been able to figure out. I hope someone can explain.
Is there a way to estimate what the 1099-DIV from a particular payer will look like based on transactions reported throughout the year, and year-end distribution estimates? The transactions are always labelled fairly generically such as “Dividend” but don’t tell me qualified or not, and it seems the numbers never quite line up with the boxes on 1099-DIV either.
I’m trying to do some very specific tax estimating for 2018 before taking some year-end actions, and I’d like to be able to estimate this accurately. I’m aware that many dividends are paid late in the year, so I’ll have to rely on their estimates. That’s OK.
If the answer is “You can’t possibly know until you get the 1099-DIV” then I can at least stop trying to figure it out.
For reference, I’ve cut and pasted definitions of terms used on 1099-DIV.
Ordinary Dividends . Dividends paid out from a company’s earnings and profits are referred to as ordinary dividends. They are taxed at normal income tax rates. Many real estate investment trusts (REITs), for example, pay out ordinary dividends, which can raise your overall tax burden. These are sometimes referred to as “non-qualified dividends” and are reported in box 1a of the 1099-DIV.
Qualified Dividends . Dividends may be considered qualified if they’re paid by a U.S. corporation or qualified foreign corporation and you’ve met the holding period requirement for the underlying stock. Qualified dividends are subject to long-term capital gains tax rates and are reported in box 1b on your 1099-DIV.
Capital Gains Distributions . You may also receive payments from your dividend-paying stock in the form of capital gains distributions. These are generally received from mutual funds and are reported in box 2a on your 1099-DIV and are subject to long-term capital gains rates (regardless of how long you owned the shares).