Liquidating dividend tax treatment

The holding period is important because it determines if the client qualifies for the 15% (0% if in the 10% or 15% tax rate bracket) long-term capital gain tax rate.If the stock dividend or stock split is taxable, then the basis in the new shares is the fair market value of the stock when it is received.The proper reporting of interest and dividend income is important because misreporting this income can trigger a notice from the IRS when the IRS cannot match what is reported with the information they have received. The dividends are taxable even though the client does not physically receive cash or the stock. These are additional shares of stock received from a corporation.They are not taxable if they do not increase the percentage of ownership in the corporation.Since the client owned the old stock for two years, the client is treated as if he or she owned the new stock for two years.

This includes dividends received from mutual funds if the distribution is otherwise a qualified dividend.

As part of every liquidation, state and federal income, payroll and capital gains taxes must be paid at both the corporate and individual levels.

A C corporation is a business entity governed by Subchapter C of the Internal Revenue Code.

The benefit of this reduced tax rate on dividends only applies to dividends received.

Any amounts received in individual retirement accounts or retirement plans are taxed at ordinary income tax rates when they are withdrawn.


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