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All About Dividends

What are Dividends?

A dividend is a share of a company's profits distributed to shareholders and usually paid quarterly, like a bonus to investors.

While no dividends are guaranteed, some take precedence over others. Shareholders who hold preferred stock have a higher claim on a company’s assets than common shareholders but a lower claim than bondholders.

If a company is forced to cut its dividends, it starts from the bottom of the hierarchy and works upward. It’ll pay bondholders first, then preferred shareholders and, if there’s anything left over, give common stockholders their due.

Dividend income is usually taxable to the taxpayer and is reported on Schedule B, Part II. Taxable dividends include received dividends from corporations, investments, and money markets. Dividend income is reported to the taxpayer on Form 1099-DIV. The Taxpayer may also receive a schedule K-1 reporting interest income from either a trust or estate, S-Corp or Partnership.

Many clients ask their accountant, "What is an ordinary dividends?"

Ordinary Dividends are the most common type of dividend distribution due to the nature it deals with and the fact its a mutual fund and taxed as an ordinary income.

If you are expecting to get a dividend pay-out and need assistance on how to report this information on your 2020 tax returns, contact us and we can assist you.


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