Cash liquidating distribution

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The tax treatment for a payment identified by the company as a "liquidation distribution" or "liquidating dividend" depends on whether it is a partial or complete liquidation.

A company may have sold all its assets and is dissolving (complete liquidation) or it may have sold a division or subsidiary and is distributing the net proceeds to shareholders (partial liquidation.)For complete liquidations (that meet IRS definitions), no gain is realized until all of your cost basis has been recovered.

This effectively gives the shareholder a credit to apply against the earned income when it is ultimately distributed to the shareholder, ensuring that the income is only taxed once.

The shareholder’s basis is decreased (but not below zero) by the shareholder’s share of the S corporation’s items of loss and deduction, nondeductible expenses (except expenses that are not chargeable to the capital account), depletion deduction for oil and gas property, and distributions to the shareholder that are not made from accumulated earnings and profits.

You could also get one if you had federal or foreign taxes withheld. There’s a chance you could get a consolidated 1099.

Do you know how it affects your taxes or your investments? Regardless, you should still understand what is reported on the 1099-DIV, the tax consequences of each box, and how it might affect your investments.

Unfortunately, not all dividends and distributions are taxed the same. In turn, it might even help you build a more tax efficient investment strategy and lower your taxes in the long run.

The Form 1099-DIV is issued by banks, brokers, and fund companies when you earn at least in dividends and distribution.

The tax consequences of distributions by an S corporation to a shareholder depend on the shareholder’s basis in the S corporation stock.

Distributions to the shareholder are not included in the shareholder’s gross income to the extent that the distribution does not exceed the shareholder’s basis in the stock.

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