Tax Form Information

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1099-DIV

Form 1099-DIV is sent to most non-retirement account owners who received a taxable dividend, exempt-interest dividend or capital gain distribution.

The information that may be included on the form:

  • Total Ordinary Dividends
  • Qualified Dividends
  • Total Capital Gain Distributions
  • Unrecaptured Section 1250 Gain
  • Collectibles (28%) Gain
  • Nondividend Distributions
  • Federal Income Tax Withheld
  • Section 199A Dividends
  • Foreign Tax Paid
  • Cash Liquidation Distributions
  • Noncash Liquidation Distributions
  • Exempt-Interest Dividends
  • Specified Private Activity Bond Interest
 

1099-DIV FAQs

 Why did I receive a 1099-DIV on my account?

  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
  • The fund did not pay any distributions

 Why are the amounts on my 1099-DIV different than on my yearend statement?

  The fund may determine that distributions paid throughout the year need to be adjusted to properly reflect the fund’s taxable income and capital gains. Income and/or realized gains may be reclassified at the end of the year.

 What are the tax rates for capital gains?

Single

Income

Married/Filing jointly/Qualifying Widow(er)

Tax Rate

$0-$38,600

$0-$77,200

0%

$38,601-$425,800

$77,201-$479,000

15%

Over $425,800

Over $479,000

20%

These rates do not include the 3.8% Medicare surtax that may be applicable to net investment income for higher income taxpayers.

 What are qualified dividends?

  Qualified dividends are ordinary dividends received by a shareholder from domestic or qualified foreign corporations that are subject to the same 0%, 15%, or 20% maximum tax rate that applies to net capital gain. They should be shown in box 1b of the Form 1099-DIV.

 What are the holding period requirements associated with qualified dividends?

  Generally, a security must be held more than 61 days of the 121-day holding period surrounding the security's ex-dividend date to qualify for favorable tax treatment of the dividend. With distributions from mutual funds, the holding period requirement applies on both the fund level and the shareholder level. This means that in order for a dividend to be qualified, the fund must have held the security for at least 61 days of the 121-day period. On your Form 1099-DIV, you will be provided with the total of qualified dividends, based on the fund's holding period; however, in order for the dividend to actually qualify, you must have also held the mutual fund shares for at least 61 days of the 121-day period. To calculate your holding period, count the number of days you held the shares starting with the day after the shares were purchased. If the shares were sold, count the number of days held, including the date sold.

 What are nondividend distributions and why are they on my Form 1099-DIV?

  Nondividend distributions are distributions from your fund which are a return of capital to you. You must reduce your cost (or other basis) by the amount shown in Column 3. However, if you get back all of your cost (or other basis), you must report future nontaxable distributions as capital gains even though Form 1099-DIV shows them as nontaxable. Review Publication 550 for assistance in determining if the amount shown in Column 3 is truly nontaxable to you.

 What is a return of capital?

  A return of capital is created when a fund pays more in dividend distributions to investors than it earned on a tax basis during the fund’s fiscal year.  A fund may distribute return of capital in order to pay dividends consistent with its respective yields.

 Why did I receive a 1099-DIV for my tax-exempt fund(s)?

  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-DIV in box 11.

 Why did my 1099-DIV reflect amounts in foreign tax paid?

  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.) Please contact Client Services at (888) 923-3355 or visit our website for percentages of foreign source income.

 What is Alternative Minimum Tax?

  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.

 What tax-exempt income is subject to the AMT?

  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 12 of the 1099-DIV.

 How do I determine if I am subject to the AMT?

  To determine if you may be subject to the AMT, refer to the Form 1040A and Form 6251 Instructions.


1099-B

Form 1099-B is sent to most non-retirement account owners who sold and/or exchanged shares of a fund (other than a money market fund).

The information that may be included on the form:

  • Description of Property
  • Date Acquired
  • Date Sold or Disposed
  • Net Proceeds
  • Cost or Other Basis
  • Wash Sale Loss Disallowed
  • Federal Income Tax Withheld
  • Noncovered Security
  • Cost Basis Method
  • Gain/(Loss)

1099-B FAQs

  What are the methods for calculating cost basis?

 We offer seven different methods for calculating cost basis and they are as follows:

  • FIFO – First In, First Out: shares are sold in the order in which they were purchased.
  • HIFO – High Cost, First Out: shares with the highest cost are sold first.
  • LIFO – Last In, First Out: shares that were acquired last will be sold first.
  • LOFO – Low Cost, First Out: shares with the lowest cost are sold first.
  • LGUT – Loss/Gain Utilization: these shares will be sold according to two different requirements:
    • First, losses and gains per share will be evaluated and shares with losses will be sold first.
    • Second, the holding period will be evaluated and shares will be sold as follows: for shares with losses, short- term will be sold before long-term and for shares with gains, long-term will be sold before short-term.
  • SLID – Specific Lot Identification: the shareholder specifies which securities are sold first. Cost basis information is not available for noncovered shares using this method.
  • ACST – Average Cost: uses the average cost of the shares as the basis for calculating your cost when the shares are sold. The Average Cost method redeems the oldest shares first, and the holding period will be based on the acquisition date of the shares sold.

Please Note:  If you have elected any method other than SLID, your noncovered shares will be reported on Form 1099-B using the Average Cost method (when available) but will not be reported to the IRS. Your covered share transactions will be reported on Form 1099-B using your elected method and will also be reported to the IRS.

   What if an individual redemption transaction consists of shares acquired before January 1, 2012 and after January 1, 2012?

 In that case, the redemption transaction would be broken out into separate reporting lines on the Form 1099-B. Each line will display whether the cost basis is being reported to the IRS.

 What if the individual redemption transaction noted above consists of long-term and short-term shares?

 In this instance, and for purposes of the Form 1099-B, the shares redeemed are categorized as long-term or short-term and then further divided into sales of covered (for which basis is reported to the IRS) or noncovered (for which basis is not reported to the IRS).

  How is cost basis calculated for my noncovered shares using the average cost method (ACST)?

 Under this method, the cost of all the fund noncovered share purchases is added and then divided by the total number of noncovered shares owned to determine the average cost per share. When noncovered shares are redeemed, the noncovered share total is multiplied by the average cost per share to get to the determined average cost basis of the noncovered shares. Gain or loss from the sale of these shares is then computed as the difference between the redemption amount and the determined average cost basis.

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

Please Note: The same methodology can be used to calculate the average cost basis of your covered shares.

  How is the holding period determined using the average cost method?

 The Average Cost method depletes the oldest shares first using a first-in, first-out order.

   Why is the cost basis information not available on my account?

 The cost basis information may not be available due to a transfer being processed on the account and the cost basis information was unavailable at that time, account was established prior to the mandatory cost basis effective date, an adjustment affecting prior years was processed, it is not provided at the shareholder’s request, not provided at the option of the fund and/or the shareholder has selected SLID as their cost basis method.

   What is a sales load basis deferral?

 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.

  What is a wash sale loss?

 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.

   How does a return of capital affect my cost basis?

 Return of capital distributions reduce your cost basis. For example, if your Cost Basis is $1,000 and you received a return of capital of $100, your cost basis is reduced to $900.


1099-R

Form 1099-R is sent to most retirement account owners who took a distribution from their account.

The information that may be included on the form:

  • Gross Distribution
  • Taxable Amount
  • Taxable Amount Not Determined
  • Total Distribution
  • Federal Income Tax Withheld
  • Totals Per Distribution Code by State
  • Distribution Code
  • State Tax Withheld
  • State/Payer’s State Number

1099-R FAQs

 Why did I receive a 1099-R for my account

  Federal regulations require that you report proceeds from redemptions on your retirement accounts. This includes removal of excess contributions/deferrals, conversions and recharacterizations.

 Why is money being withheld from my retirement account distribution

  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.

 Why did I receive three copies of my 1099-R

  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.

 Why did I receive a 1099-R on a conversion from my IRA to a Roth IRA

  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.

 What are tax implications of my Roth IRA recharacterization

  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.

 Why do I have separate total lines on my 1099-R

  There are different scenarios that may create multiple total lines.

  • If you have multiple distribution codes they will be listed as separate totals. For example, a normal distribution was taken out of your IRA Rollover, this would be one total line, and a distribution due to death was taken out of your Beneficiary IRA, this would be a second total line.
  • If you lived in different states during the tax year, totals will be provided for each state. For example, from January through April you lived in Missouri and from May through December you lived in Kansas. Any distributions taken out of your account from January through April will be one total line with a state code of MO and any distributions taken out of your account from May through December will be a second total line with a state code of KS.

 Some of the contributions previously made to my Traditional IRA account have been nondeductible contributions. How do I determine how much of my distributions are taxable

  In order to determine the taxable amount of your distributions received from your traditional IRA, see the instructions for IRS Form 8606 and IRS Publication 590.

 Why is my rollover transaction from my IRA account reported on Form 1099-R?

  All retirement account distributions are reportable to the IRS on Form 1099-R. If your IRA was rolled over into another IRA investment, that amount will also be reported to you and the IRS on Form 5498.


1099-Q

Form 1099-Q is sent to most Coverdell ESA and Invest Ed 529 account owners who took a distribution from their account, including trustee-to-trustee transfers.

The information that may be included on the form:

  • Gross Distribution
  • Earnings
  • Basis
  • Trustee-to-Trustee Transfer
  • Type of Account
  • Recipient is not the Designated Beneficiary
  • Fair Market Value as of 12-31

1099-Q FAQs

 For Coverdell ESA contributions/distributions, why does the earnings column only show earnings from excess contributions?

 It is not a requirement by the IRS to report the earnings on Coverdell ESA contributions/distributions.  Instead, the fair market value of your account as of December 31st has been provided.

 For Coverdell ESA distributions, how do I calculate the earnings portion of my gross distribution?

 To figure your earnings use the Coverdell ESA - Taxable Withdrawals and Basis Worksheet in Publication 970.

 What is the difference between qualified and nonqualified distributions?

 Qualified distributions are used for educational expenses such as tuition, room and board, etc. Nonqualified distributions are distributions that are not being used to cover educational expenses.

 For distributions from an InvestEd 529 plan, who will receive Form 1099-Q?  The participant or the beneficiary?

 The tax form will be sent to either the participant (account owner) or beneficiary depending on the recipient of the distribution. Generally, the beneficiary is listed as the recipient if the distribution is made directly to the beneficiary or to an eligible educational institution for the benefit of the beneficiary. The participant will be listed as the recipient on all other distributions.

 Will I get a tax form for my InvestEd 529 contributions?

 No. Form 1099-Q is for distributions only. It's the only tax form generated for 529 accounts. Contributions are not tax deductible; therefore, no tax forms are generated.


592-B

Form 592-B is sent to most account owners who reside in the state of California and had state backup withholding.

The information that may be included on the form:

  • Type of Income Subject to Withholding
  • Total Income Subject to Withholding
  • Total California Tax Withheld (excludes backup withholding)
  • Total Backup Withholding

1042-S

Form 1042-S is sent to most nonresident aliens and eligible foreign entities who have received income and have valid tax documentation of foreign tax status on file.

The information that may be included on the form:

  • Income Code
  • Gross Income
  • Chapter Indicator, Exemption Code and Tax Rate
  • Federal Tax Withheld
  • Total Withholding Credit

5498-ESA

Form 5498-ESA is sent to most Coverdell ESA account owners who made contributions to their accounts, including trustee-to-trustee transfers.

The information that may be included on the form:

  • Coverdell ESA Contributions
  • Rollover Contributions (including trustee-to-trustee transfers)

5498-ESA FAQs

 Are contributions to a Coverdell ESA deductible?

 Contributions to a Coverdell ESA are not deductible; however, earnings accumulate tax free and qualified withdrawals are nontaxable.

 Can I also fund a Coverdell ESA if I currently have a 529 account?

 Yes, the law permits contributions to both a Coverdell ESA and 529 in the same year for the same beneficiary.


5498

Form 5498 is sent to Traditional, Roth, SEP and Simple IRA owners who made contributions to their accounts.

The information that may be included on the form:

  • Contributions to a Traditional, Roth, SEP and/or Simple IRA
  • Rollover Contributions
  • Roth IRA Conversions
  • Recharacterized Contributions
  • Fair Market Value as of 12-31
  • Type of IRA

5498 FAQs

 Why am I just now receiving the 5498 form?

 The IRS allows you to make contributions to certain individual retirement arrangements through the due date of 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.

 Why are the amounts shown on form 5498 different than the amounts of my employer contributions and salary deferrals for my SEP and/or Simple IRA?

 The contributions on Form 5498 report on a calendar year basis.

  • Box 8 reports employer and/or salary reduction contributions to a SEP received from January 1st through December 31st.
  • Box 9 reports employer and/or salary reduction contributions to a SIMPLE received from January 1st through December 31st.

If your employer did not make any contributions until after the first of the year, those contributions will be reported on your Form 5498 the following year.

 Why did I receive a Form 5498 for my recharacterization/conversion?

 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.

 If I did not make any contributions to my retirement plan and need to know the fair market value of my investment, where might I find it?

 If you did not make any contributions, you may obtain the FMV for each plan type and account from your Annual Statement mailed in early January.

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The tax information in this section of the website is for informational purposes only. It is not intended, and should not be construed, as recommendation, or legal, tax or investment advice. You should consult your tax advisor to answer questions about your specific situation or needs.

This is for informative purposes only. Waddell & Reed financial advisors do not offer tax advice. You may want to consult with your accountant or tax advisor to discuss your personal situation.