Gathering my information to report to IRS I am stuck with how you report to the IRS when dealing with options and dividends.
I bought ABC stock for $9.36 and then I wrote calls and received the premiums. I also received the dividend but then I was assigned and had to pay the dividend back.
How do I report this transaction?
There are several reporting issues: i) reporting the sale of ABC, ii) reporting the premium received for the ABC calls, and iii) reporting the dividend and repayment of dividend.
i and ii) The sale of the stock is rported like sale of any other stock, except you reduce the cost basis by the call premium received.
Combine the stock sale and call premium all on one single tranaction, using the stock acquisition and sales dates only, ignoring call dates.
iii) Apparently the broker paid you a dividend you were not entitled to, and then you paid it back. Wait and see if the broker's 1099DIV cancels out that dividend. If not, I would report the dividend as shown on the 1099DIV, on Schedule B (even if you need not otherwise file schedule B) and then enter something like "Repayment of dividend improperly reported ... ($XX)" and that should cancel out the dividend received.
================ ================ OT, there is a procedure covering "Dividends paid in lieu" which typically occurs when you have shorted a stock and a dividend is due and you are obligated to pay it.
But your stock was held long, and your repayment does not appear to be a Dividend in lieu, but I'm willing to be convinced otherwise.
Fantastic answer! I believe the broker will cancel out the dividend and I will be left with just reporting the calls and shares. Is there a site that you personally know of where I can do more reading on this or maybe a book? Thank you!
I would generally look at the IRS Instructions to Form 1040 Schedule B and Scedule D, and also IRS Publication 550, but your particular situation isn't there.
Following-up on my previous question, my broker did not cancel out the dividend thus now I must correct this on my taxes. Art provided me with this answer:
"Apparently the broker paid you a dividend you were not entitled to, and then you paid it back. Wait and see if the broker's 1099DIV cancels out that dividend. If not, I would report the dividend as shown on the 1099DIV, on Schedule B (even if you need not otherwise file schedule B) and then enter something like "Repayment of dividend improperly reported ... ($XX)" and that should cancel out the dividend received. "
My broker provided me with a 1099DIV, reporting Qualified Dividends $1,835.82 and Non-dividend Distributions $338.52 totaling $2174.34. This is the amount that should had been canceled out. My question is what part of schedule B do I enter this correction? I found on schedule B a section titled " Adjustments to Dividends or ESOP Distribution" and three boxes you can click. Box H is titled "Other adjustments" and allows a description. Is this the area I enter the adjustments? Is the description to note "Repayment of dividend improperly reported"?
I also have two dividend charges, totaling $163 (I went short the stock) where can I enter this information?
Thank you in advance.
Daniel
Ignore qualifuying dividends for this exercise and concentrate om
ordinary dividends. And now it comes out you were short and ave to make "in lieu of" payments.
The treatment of in lieu of payments is different.
And it depends whether you met the 45 day rule or not. My suggestiion is to download IRS Pub 550 and search for "in lieu of" and that will give you the answer!
Don't try to correct schedule B.
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