Waddell & Reed

1099 Tax Guide - Forms & Resources

Understanding Form 1099-DIV: Dividends and Distributions



Click to Enlarge

  1. Ordinary Dividends
    Box 1a reports taxable dividends and short-term capital gain distributions. Short-term capital gain distributions are reported in this box as they are included in ordinary income for tax purposes.
  2. Qualified Dividends
    Box 1b reports the amount of dividends that may be taxed at a maximum rate of 15% assuming that the 61 day holding period requirement is met. The shareholder is responsible for determining if the holding period was met and for adjusting the amount accordingly. Refer to your December 31st statement to determine the holding period. Please see the instructions for IRS Form 1040 for more information.
  3. Total Capital Gain Distributions
    Box 2a reports the total long term capital gains.
  4. Unrecaptured Section 1250 Gain
    Box 2b reports section 1250 gain of certain depreciable real property. The amounts in this box will report the reclassified tax character of the distributions.
  5. Collectibles (28%) Gain
    Box 2d reports the 28% rate gain from the sale or exchange of collectibles. The amounts in this box will report the reclassified amounts of long term capital gains associated with the sale of precious metals including gold.
  6. Nondividend Distributions
    Box 3 reports a nontaxable distribution due to a return of capital distribution.
  7. Federal Income Tax Withheld
    Box 4 reports the amount withheld from any dividend or capital gain distribution. This amount is a prepayment of federal income tax.
  8. Foreign Tax Paid
    Box 6 reports foreign tax paid on foreign investments. This amount can be claimed as an itemized deduction, or used to obtain a foreign tax credit.

Frequently Asked Questions

Q. Why did I receive a 1099-DIV on my account?
A. Mutual funds are required to pay distributions of income and realized gains each year. Distributions are taxable to the shareholder even if the distribution is reinvested in the account.

You will not receive a 1099-DIV if:

  • The account is a tax deferred account such as an IRA Account
  • All distributions in the account are tax-exempt
  • The fund did not pay any distributions

Q. Why are the amounts on my 1099-DIV different than on my Year End Statement?
A. The funds may determine that distributions paid throughout the year need to be adjusted to properly reflect the funds taxable income and capital gain. Income and/or realized capital gains may be reclassified at the end of the year.

Q. Why did I receive a 1099-DIV for my tax-exempt fund(s)?
A. The tax-exempt funds are allowed to invest in taxable securities as outlined in the prospectus. If the tax-exempt funds pay distributions with portions of income and/or realized gains that are taxable, the amounts will be reported on your 1099-DIV. The distributions of income and/or realized gains that are free from federal income tax will be reported on your 1099-INT.

Q. Why did my 1099-DIV reflect amounts in Foreign Tax Paid?
A. The foreign tax paid is a credit that is intended to relieve U.S. taxpayers from dual taxation when the foreign source income is taxed both by the United States and the foreign country. The foreign tax paid may be taken as a foreign tax credit or an itemized deduction. If foreign taxes total less than $300 ($600 if married filing jointly) and if all reported foreign tax is reported on 1099 Forms, you are exempt from the foreign tax credit limitation rules and the credit may be claimed on Form 1040. If not, you must file Form 1116 to claim the credit. To elect the deduction you must itemize deductions on Schedule A, Form 1040. To claim the credit the shares must have been held for at least 16 days. Please consult your tax advisor to determine which option to elect.

Due to changes in the foreign credit provision of the IRS tax law, shareholders generally no longer need the country-by-country information. (An election is available to claim the aggregate foreign tax amount as a credit.)

Important information for all investors in the Ivy Real Estate Securities Fund
The Ivy Real Estate Securities Fund will not mail 2011 tax form statements (1099-DIV and 1099-B) until February 2012. Ivy Real Estate Securities Fund invests predominately in real estate investment trusts (REITS), as defined under Internal Revenue Code Section 856. Although Ivy Real Estate Securities Fund will identify the total amount of distributions received from the REITs during tax year 2011, the fund cannot identify the tax character of these distributions until at least February 15, 2012, when the form 1099 information is received from the REITs in which the fund is invested.

Shareholders can expect to receive tax statements for this fund in late February. Each year Ivy Real Estate Securities Fund obtains an extension of the mail date from the Internal Revenue Service.

Understanding Form 1099-INT: Tax-Exempt Dividends



Click to Enlarge

  1. Federal Income Tax Withheld
    Box 4 reports the amount of backup withholding from dividend and/or capital gain distributions.
  2. Tax-Exempt Interest
    Box 8 reports the amount of federal tax-exempt income.
  3. Specified Private Activity Bond Interest
    Box 9 reports the amount of federal tax-exempt income subject to the alternative minimum tax (AMT).

Frequently Asked Questions

Q. What is Alternative Minimum Tax?
A. The AMT is a separately figured tax that expands the amount of income that is taxed by adding back certain deductions and credit items that may be tax-exempt under the regular tax system.

Q. What tax-exempt income is subject to the AMT?
A. Tax-exempt interest on certain private activity bonds is considered a preference item for the AMT calculation. The portion of this interest is reported in box 9 of the 1099-INT.

Q. How do I determine if I am subject to the AMT?
A. To determine if you may be subject to the AMT refer to “Worksheet to See if You Should Fill in Form 6251” in the Form 1040 instructions.

Understanding Form 1099-B: Proceeds from Broker and Barter Exchange Transactions



Click to Enlarge

  1. Date of Sale
    Box 1a reports the trade date of the sale or exchange.
  2. Date of Acquisition
    Box 1b will be blank for 2011 transactions on Form 1099-B.
  3. Sales Price of Stocks, Bonds, Etc.
    Box 2 reports the amount of proceeds from the sale of shares by either redemption or exchange.
  4. Cost or Other Basis
    Box 3 reports the basis of your transactions utilizing the average cost basis method.
  5. Federal Income Tax Withheld
    Box 4 reports the amount withheld from your redemptions.
  6. Wash Sale Loss Disallowed
    Box 5 is used to report the amount of non-deductible loss in a wash sale transaction involving “covered securities” (see more below). This box will be blank for 2011 sales because, under the new reporting rules outlined below, all securities sold in 2011 were “noncovered”.
  7. Noncovered Securities
    Box 6 will be marked YES for all 2011 transactions.
  8. Type of Gain or Loss
    Box 8 reports the holding period associated with each transaction as long term or short term.
  9. Accounting Method
    This box will be marked ACST (average cost) for all 2011 transactions.
  10. Gain/(Loss)
    Provides the computed gain or loss associated with each transaction.

New Reporting Rules for form 1099-B

Extensive new requirements were placed on brokers that report gross sales proceeds on Form 1099-B for sales of securities. The Energy Improvement and Extension Act of 2008 introduced the new concept of "covered" and "noncovered" securities. A revised Form 1099-B is being issued, starting with 2011 tax reporting, that contains new boxes to list cost basis information for covered securities.

The dates that securities become "covered" vary based on the type of investment:

January 1, 2011 - for stock securities purchased through a brokerage firm

January 1, 2012 - for mutual fund purchases

January 1, 2013 - for bond and option securities purchased through a brokerage firm

Mutual fund shares acquired prior to January 1, 2012, and subsequently redeemed, are exempt from this reporting and referred to as noncovered securities. However, we will continue to report cost basis information to you, when available, on Form 1099-B. We will not report cost basis information on noncovered securities to the IRS.

Symbols included on your Form 1099-B

The (#) Wash sale: A wash sale occurs when shares are sold at a loss and all or a portion of the shares sold are repurchased within 30 days before or after the sale. All or a portion of the loss resulting from that sale is disallowed by the IRS. The loss amount shown on your form is the adjusted amount of the loss. The disallowed portion of the loss is added back to the cost basis of the remaining shares in the account, resulting in a smaller gain or larger loss for future sales. Please note that reinvested dividends and capital gains are considered a repurchase of shares.

(†) Sales load basis deferral: An adjustment is made to the cost basis of an exchange redemption when you exchange from one front-end load fund to another at net asset value within 90 days of the original purchase. The amount of the original sales load paid on the shares must be subtracted from the cost basis of the exchange redemption shares and added to the cost basis of the exchange purchase shares.

(*) Less commissions: If the shares sold were subject to a contingent deferred sales charge, the amount shown in Box 3 does not include the sales charge paid. The sales charge amount is an adjustment to the cost basis prior to determining the gain or loss on the sale.

(@) Not available: A redemption noted with a “@” means the cost basis information for this account is not available. This is due to one of the following: (1) there was a transfer processed on your account, (2) your account was established prior to our Average Cost period, (3) an adjustment affecting prior years was processed, (4) this is not provided at the shareholder’s request, or (5) it is not provided at the option of the fund.

(‡) Split redemption: This symbol indicates a sale of shares is shown as two transactions, because the redemption included shares that had been held for both short-term and long-term holding periods.

Frequently Asked Questions

Q. How is cost basis calculated using the single-category average cost method (ACST)?
A. Under this method, the cost of all the fund share purchases is added and then divided by the total number of shares owned to determine the average per share cost of all the shares. When shares are redeemed, the share total is multiplied by the average cost per share to get the determined average cost basis. Gain (or loss) from the sale of fund shares is then computed as the difference between the redemption amount and the determined average cost basis.

  1. Add the total dollars of all shares currently owned.
  2. To calculate the average basis per share divide the results of the first step by the number of the shares currently owned.
  3. To calculate the basis of the shares being sold multiply the results of the second step by the number of the shares.

Q. What are the other methods for calculating cost basis?
A. The IRS permits three other methods of accounting for mutual fund cost basis:

  1. FIFO. In this method the shares are sold in the order they were acquired.
  2. Specific Identification. In this method specific shares are identified to be sold first.
  3. Double-Category Average Cost. In this method shares are divided into two categories; long term and short term, creating a cost basis for each of the two categories.
    Note: This method is rarely used, and the IRS has eliminated the method effective April 1, 2011.

Q. Are mutual funds required to provide cost basis on all accounts?
A. No, cost basis is not reported to the IRS on noncovered shares. However, as a service, cost basis is provided to you using the Single-Category Average Cost Method. You may choose any of the IRS allowable methods to calculate cost basis. However, for covered shares (i.e., mutual fund shares acquired after January 1, 2012), reporting of cost basis information will be mandatory. For additional information, please see the “Understanding Changes to Cost Basis Reporting” information.

Q. What is a wash sale loss?
A. A wash sale occurs when you sell mutual fund shares at a loss and within 30 days before or after the sale, either buy or acquire in a taxable exchange, substantially identical shares. Tax regulations defer deduction of a loss on the sale to prevent realization of a loss solely to offset capital gains. The disallowed portion is added back to the cost basis of the remaining shares resulting in a smaller gain or larger loss for future sales. The disallowed portion has also been deducted from the amount shown in the Gain (Loss) column for each transaction qualifying as a wash sale. Reinvested dividends and capital gains are considered purchases by the IRS, and are capable of creating a wash sale.

Q. What is a sales load basis deferral?
A. Sales loads are normally added to the basis amount of the shares purchased. This may not be the case if shares are redeemed or exchanged within 90 days after the date of purchase and additional shares are acquired in the same fund or exchanged into a different fund at net asset value. The sales load may need to be reduced from the cost basis of the redemption and added to the cost basis of the subsequently acquired shares. Please consult your tax advisor regarding the effect of this transaction.

Q. How does the holding period of the shares sold impact my taxes?
A. Holding periods determine the rate at which the redemption or exchange will be taxed.

  1. Short Term: 1 year or less. The gains are taxed at the ordinary income tax rate.
  2. Long Term: Over 1 Year. The gains are taxed at the applicable capital gain rate based on your tax bracket.

Understanding Form 1099-R: Distributions from IRAs and Qualified Plans



Click to Enlarge

  1. Gross Distributions
    Box 1 reports the total amount of distributions from IRAs or Qualified Plans including federal and state tax withholding.
  2. Taxable Amount
    Box 2a reports the amount of distribution that is generally taxable. Pursuant to 2011 1099-R IRS instructions, for Traditional, SEP & SIMPLE IRA’s, the amount in box 2a will usually be the same as the amount in box 1. For Roth IRA’s and Qualified Plans, this box will generally be blank.
  3. Taxable Amount Not Determined
    Box 2b is generally marked for mutual fund accounts. It is the responsibility of shareholders to determine the taxable amount of the distributions.

    Total Distribution
    Box 2b will be marked if the distribution was a total distribution that closed out the account.
  4. Federal Income Tax Withheld
    Box 4 reports the amount of federal tax withheld on the distribution.
  5. Distribution Code
    Box 7 reports the type of distribution. Refer to the back of Form 1099-R for a list of codes and distribution definitions.
  6. State Tax Withheld
    Box 12 reports the amount withheld on the distribution. The amount is a prepayment of state income tax.
  7. State/Payer's State Number
    Box 13 indicates state tax residence on our records at the time of distribution. When state withholding is taken the amount is remitted to the state listed on the form.

Frequently Asked Questions

Q. Why did I receive a 1099-R for my account?
A. Federal regulations require that you report proceeds from redemptions on your retirement accounts. This includes removal of excess contributions/deferrals, conversions and recharacterizations.

Q. Why is money being withheld from my retirement account distribution?
A. Unless instructed by a shareholder not to withhold income tax, federal law requires 10% to be withheld from retirement account distributions. If the distribution is from a Qualified Plan federal law requires 20% to be withheld on distributions that are not direct rollovers to another custodian. This serves as a prepayment of income tax and should not be confused with penalties for early withdrawals.
Note: If withholding is reported, copy B of Form 1099-R must be filed with Form 1040

Q. Why did I receive three copies of my 1099-R?
A. The first copy is filed with your federal taxes. The second copy is for your records. The third copy should be used if you are required to file taxes with your state.

Q. Why did I receive a 1099-R on a conversion from my IRA to a Roth IRA?
A. All or a portion of the amount converted may be taxable. The conversion from your traditional IRA to a Roth IRA is considered a distribution from your traditional IRA. Conversions are typically taxable in the year of the distribution and are reported on the Form 1099-R. To determine the taxable amount refer to the instructions for Form 8606 or consult your tax advisor on completing Form 8606.

Q. What are tax implications of my Roth IRA recharacterization?
A. The distribution will be reported on Form 1099-R and must be reported in the calendar year in which it occurred. See the instructions for IRS Forms 1040 and 8606 to determine how recharacterizations are reported or please consult your tax advisor.

2011 5498 tax forms will be mailed on or before May 31, 2012

Understanding Form 5498: IRA Contribution Information



Click to Enlarge

  1. IRA Contributions
    Box 1 reports 2011 IRA contributions made between January 1, 2011 and April 17, 2012.
  2. Rollover Contributions
    Box 2 reports rollover contributions made to your account in calendar year 2011.
  3. Roth IRA Conversion Amount
    Box 3 reports amounts received in calendar year 2011 from a traditional IRA, SEP or SIMPLE IRA which were converted to a Roth IRA.
  4. Recharacterized Contributions
    Box 4 reports amounts recharacterized from a Roth IRA to a traditional IRA, or a traditional IRA to a Roth IRA in calendar year 2011.
  5. Fair Market Value of Account
    Box 5 reports the December 30, 2011 fair market value of your account.
  6. Type of IRA
    Box 7 references the type of IRA reported on this form.
  7. SEP Contributions
    Box 8 reports SEP contributions made between January 1, 2011 and December 30, 2011 on your behalf.
  8. SIMPLE Contributions
    Box 9 reports SIMPLE contributions made between January 1, 2011 and December 30, 2011 on your behalf.
  9. Roth IRA Contributions
    Box 10 reports Roth IRA contributions made between January 1, 2011 and April 17, 2012 on your behalf.
  10. RMD Checkbox
    Box 11 will be marked if there is a minimum distribution (RMD) for 2012 due from your IRA.

Frequently Asked Questions

Q. Why am I just now receiving the 5498 Form?
A. The IRS allows you to make contributions to certain individual retirement arrangements through the due date or your tax return, excluding extensions. In order to ensure that all contributions are reported accurately, Form 5498 is not due until May 31st following each tax year.

Q. Why are the amounts shown on Form 5498 different than the amounts of my 2011 employer contributions and salary deferrals for my SEP and/or SIMPLE IRA?
A. The contributions on Form 5498 report on a calendar year basis.

  • Box 8 reports employer and/or salary reduction contributions to a SEP received in 2011.
  • Box 9 reports employer and/or salary reduction contributions to a SIMPLE received in 2011.
If your employer did not make 2011 contributions until 2012, the 2011 contribution will be reported on your 2012 Form 5498.

Q. Why did I receive a Form 5498 for my recharacterization/conversion?
A. The 1099-R reportable conversion/recharacterization amount may be subject to income tax; therefore, as the custodian of your IRA, we report this activity on Form 5498. This reporting indicates to the IRS the amount deposited to another IRA.

Financial Advisor Opportunities
Corporate Careers