Liquidating dividend calculation
However, some amounts you receive that are called dividends are actually interest income. Part of a child's 2016 unearned income may be taxed at the parent's tax rate.
Shareholders should consult their Forms 1099-DIV as provided previously for each year for dollar amounts, and shareholders must contact their tax advisors.A liquidating dividend is used when a corporation is dissolving and it needs to distribute its assets to its shareholders.Paid after satisfying all corporate debts, the liquidating dividend is meant to provide a return on investment.Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.For more information about the tax on unearned income of children and the parents' election, see chapter 31. Dividends and other distributions you receive as a beneficiary of an estate or trust are generally taxable income.The questions and answers are based on certain assumptions that may not be accurate.
Q: Was the initial liquidating distribution of $6.20 per share the final liquidation of my investment?
Only the amount that exceeds the taxpayer's basis in the stock is capital; this is taxed as a capital gain.
The basis in the stock is how much the taxpayer paid to obtain the stock.
This means that the business sells off not just any inventory it may have, but its tools of production, building and any other assets it may have.
The purpose of this exercise is to gain the money necessary to pay off its debts and then to distribute the remainder to its shareholders through a liquidating dividend.
Regular dividends are paid out of a company's retained earnings or the earnings it has accumulated every year since it has been in operation.