Dividend entry liquidating
Dividend entry liquidating - the 1930s dating
A regular dividend is the distribution on profits or retained earnings for a period.This is the amount of money the company has earned in addition to the original amount of money the shareholders invested to start the business.
However, in case all debts to creditors have been fully satisfied, there is a surplus left to divide among equity-holders.John Cromwell specializes in financial, legal and small business issues.Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. In other words, this is a return on the investors’ investment in the company.The business must be profitable or have a positive retained earnings account in order to make a regular dividend.When you receive a liquidating dividend, the amount will be reported to you on a 1099-DIV form, in either box 8 or 9.
Only the amount that exceeds the taxpayer's basis in the stock is capital; this is taxed as a capital gain.
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.
Often a liquidation is overseen by a receiver, or a chosen representative of the shareholders, who oversees the process to ensure that it runs smoothly and that the corporation maximizes the return from the sale of its assets.
As a result, the tax code allows for tax free mergers, or reorganizations.
While there are many different types, the common thread is that in exchange for acquiring a target company's assets or stock, the acquiring company provides its stock, and sometimes cash and other property, to the target company's shareholders.
If you purchased the stock at different times, divide the dividends into short-term and long-term proportionally, based on when each block of stock was acquired.