Types of IRS Dividends

Dividends are a division of property paid when you own stock in a company. The dividends may come through an estate, trust, partnership or sub chapter of a S corporation. The tax is deducted on the net profit in terms of the initial investment.

Ordinary dividends
Ordinary dividends are provided when a person owns stocks in a company. When the stocks mature and the person makes a profit the profit is considered to be tax deductible.

Capital gain
Investing in mutual fund, real estate or any other form of investment that gives the purchaser a price higher than the investment is considered to be capital gain. This can be short term or long term [more than a year]. The profit is determined when the asset is sold and tax deducted accordingly.

Non-taxable distribution
When investments are made like the purchase of stocks through auctions there may be excessive bids causing the initial investment to be returned. These are the original investments not taxed and are based on the original investment being returned to the investor.

Qualified dividends
Profit on dividends that have not matured are called nonqualified. For example, a mutual fund bought may be sold within 30 days of buying it. However, to be termed as a ‘qualified and taxable dividend’ the share has to be held for a time of 61 days in a 121-day time period. The time begins 60 days prior to the ex-dividend. The period during which the shareholder is not entitled to a dividend is referred to as the ex-dividend date.

Stock dividend
Stock dividends that include the shareholder as having the right to an election referring to how the distribution of the stock payment will be made, qualify the dividend for tax. (Internal Revenue Code § 305(b)(1); Treas. Reg. § 1.305-2.)

Extraordinary dividends
This is a dividend in addition to the regular dividend generated due to unexpected profits. For example if you have invested in a house and the house was sold for a specific amount which later increased due to some additional land becoming apart of the house the latter part of the income would not be considered taxable.

Reinvested dividend
Reinvested dividends allow the investor to buy more shares in the company rather than getting their chare of cash. While you report these dividends they are tax deductible.

References
http://www.foley.com/publications/pub_detail.aspx?pubid=5630

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