Question

How to Report Short Dividends

Forum|Forum|3 years ago
March 11, 2023
3 replies
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I have short dividends reported to me on a 1099. These are dividends I paid while being short the stock. How do I report these short dividends in TurboTax? I would think that they reduce my dividend income but I don't see Turbotax deducting them from my dividend income after I imported the 1099.

J

JamesG1

If you received an IRS form 1099-MISC with a Box 8, Substitute payments in lieu of dividends or interest, this means that your broker lent out your shares to a short seller. The 'substitute payments in lieu of dividend or interest" is the short seller making you whole for the dividend collected while he held the stock.

Substitute payments in lieu of dividends or interest do not qualify for favorable tax rates on qualified dividends. The payment will not offset dividend income. The payment will be reported as other income on line 8z on Schedule 1 Additional Income and Adjustments to Income.

@JohnB5677 here says you may be able to report the income as a self-employment activity with expenses charged against the income.

When you run through the questions, you will come to a question about whether you intended to make money. If you did intend to make money, then it will tax your money as a business and apply the Self-Employment Tax. You can then deduct your expenses if you have any. If you did not intend to make money, then the program will just add the income as ordinary income with no Self Employment Tax.

@MAC18

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M

MAC18Author

I did not receive dividends. I paid dividends because I was short a stock that paid a dividend. I believe the correct treatment is for TurboTax to add the dividends I paid to the cost of closing out the position. However, TurboTax is not doing this. It is not doing anything with the paid dividends. Is it possible to manually change the cost to close out the short position in TurboTax? The purchase and sales data was imported to TurboTax form the brokerage 1099.

fanfare

see Pub 550 section on Reporting Substitute Payments for how to handle it.

@MAC18

C

cc2345

Did you have it reported on a 1099 or on a Supplemental Details (not reported to IRS)? My short dividends do NOT show up on my 1099, just in the supplemental information sheet.

M

MAC18Author

Yes, my short dividends were reported on my 1099. However, they were not added to my basis so I needed to manually adjust my basis in TurboTax.

fanfare

See the Instructions for Form 8949 for how to use Code "B" and whether you need an amount in column (g).

TurboTax supports this.

@MAC18

V

VickyD10

How do I report the foreign tax associated with the dividend I paid? My 1099-B show that I paid dividends on my short sell and withheld tax on it. Do I suppose to reduce the dividend paid by the amount of the foreign tax? and then add this amount to my basis? RH didn't adjust my basis that reported to the IRS.

DaveF1006

To clarify, is your 1099B a consolidated statement that has a 1099 DIV section within the statement that reports this dividend?

@VickyD10

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V

VickyD10

No. This is not the proper procedure to report this. You would need to claim a foreign tax credit for the amount of the foreign taxes paid. Here is how to enter.

Go to Federal
Deductions and credits
Estimate and other taxes paid
Foreign Tax Credit>start or revisit
When it asks We just need to check if you have any uncommon situations indicate I paid foreign taxes on income I earned while working in another country.
Navigate and record the entries that the program asks for and when you reach the page that mentions Foreign Tax Credit Worksheet, this is where you take notice.
The first that you will be asked is what category of income is it, you will say Passive income.
Next screen will say Country Summary, select add a country
When it says Other Gross Income - XXXX, Here you put in the Gross Amount you earned in that country.
Then you will navigate through the screens until you come to a screen that says Foreign Taxes Paid - XXXX, here is where you record the amount paid under Foreign Taxes. ($2.5K)
Don't report this as a negative number.
Finish out the section.

Thanks so much for your help.

I also want to clarify that I should enter a loss, thus under the Passive Income/ Gross amount / negative 10k? As I stated previously RH indicated that I paid 10k dividends. Please advise if you think I should do differently.