Estimating 1099-DIV based on transactions reported by brokerage/fund

Estimating 1099-DIV based on transactions reported by brokerage/fund
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#1

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.

  1. 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.

  2. 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.

  3. 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).


#2

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#3

Go through all dividends received during the year, look at the underlying security which paid those dividends, and check to see if you’ve held that security long enough (you should have looked for the definition of “holding period” for qualified dividends): “Common stock investors must hold the shares for more than 60 days during the 121-day period that starts 60 days before the ex-dividend date. For preferred stock, the holding period is more than 90 days during a 181-day period that starts 90 days before the ex-dividend date.”


#4

Yes, reading the definition of the terms would lead one to believe that was all there is to it. But as I said, I can never make the numbers line up.

Let’s take a real example using my 2017 end-of-year statement for a fund compared to the 1099-DIV for that fund.

The Total Cap Gain on the 1099-DIV matches the LT Gain actually paid. So it doesn’t make sense to me that it is called Total Cap Gain if it includes only LT.

As for Total Ordinary Dividends and the Qualified Dividends shown on the 1099-DIV, I’m not seeing how those relate to what was actually paid. [Note: No other box on the 1099-DIV has numbers, except foreign tax paid].

Also, if it is possible to calculate what the 1099-DIV will look like based on actual transactions shown in the account during a tax year, then why do 1099-DIVs take so long to be produced? Most are sent in mid-February, while some such as real estate and small value funds may not come out until mid-March. I can’t get over the notion that there is more to it than you can glean from looking at the actual transactions showing during the year.


#5

I’ve still been trying to find the answer to the question, and admit to still not knowing. However, I think what makes it complicated is that qualified ordinary dividends aren’t a function of how long you’ve held the fund, but how long the fund has held the stock that makes it up. If you own mutual fund XYZ that holds 500 different stocks, the fund holder cannot practically calculate based on the individual holdings. The best you can get is the fund manager’s estimate of QDI.

Of course, how long you have held XYZ fund comes into play when you sell XYZ and are calculating your capital gains on the fund.

Still unsure why funds can’t provide a best guess 1099-DIV -like report, except they might be concerned that idiots will file returns based on that information.

BTW, here’s the dividend estimates for Vanguard: http://vanguard.com/pdf/RET891511_122018_final.pdf. If anyone can describe the algorithm for turning these columns into a guess version of 1099-DIV, I’ll buy you a beer.


#6

it really depends what you invest in. if it is just simple stock, then you already know what will be on your 1099-div.

if you invest in fund, you will have to wait until end of feb because your dividend will needs to be income reallocated. let say you invest in a bond fund and get sh1tload of dividends from it, it will most likely break down to interst and return of capital, which shouldn’t be on 1099-div, but 1099-int instead.

if you want to avoid this, do not invest in any funds.


#7

oh, each fund will post their income reallocation after year end on their website. you can calculate the break down yourself, that’s if you are going to check for each one.

if you really want to do estimate, use last year break down.

I used to do tax reporting for a living making these statements.


#8

The STCG and LTCG amounts should be self explanatory, although the final amount may differ a little from the estimate. Stil, before EOY you’ll actually get paid the capital gain distributions and you should be able to see the breakdown at your brokerage (these are reported separately). For cumulative dividends paid during the year, use their QDI% to split that total between ordinary and qualified dividend categories.

In general, especially for more complicated funds, the breakdown of their distributions throughout the year can be lots of different things - return of capital, short or long term capital gains, qualified or not qualified dividends, maybe some weirder stuff too. The best guess is usually last year’s breakdown if you can find it, perhaps from your last year’s taxes or someone who held that invest previously. Sometimes the IR section of the fund or companies website may have the tax info from prior years generically presented.