A nondividend distribution is a distribution that is not paid out of the earnings and profits of a corporation or a mutual fund. Typically it is a return of the capital or the investment that was made by the owner of the corporation or mutual fund.
Nondividend distributions are typically reported to the taxpayer-shareholder on Form 1099-DIV and they are typically not taxable, however once the taxpayer's basis in the corporation has been reduced to zero any subsequent nondividend distribution is considered a capital gain and is reported on Form 8949 flowing to Schedule D. It's up to the taxpayer to keep track of their basis in the corporation, reducing it by any nondividend distributions.
To enter a nondividend distribution, from the Federal Section of the tax return (Form 1040) select:
- Schedule B - Forms 1099-INT, DIV, OID
- Interest or Dividend Income
- Dividend Income, Form 1099-DIV, then click Continue
- Enter the Payer's Name (TIN and address are optional)
- Nondividend Distributions - Enter the amount
To enter a nondividend distribution received beyond the taxpayer's basis, from the Main Menu of the tax return (Form 1040) select:
- Schedule D/Form 8949
- Capital Gains and Loss Items - Click the circle next to Dividend Income, Form 1099-DIV or click + Add a Capital Gains Transaction whichever is needed.
- Description of Property - Enter an appropriate description, e.g. nondividend distribution.
- Date Acquired - Enter the purchase date. If there are multiple dates, enter the most recent.
- Date Sold - Enter the date of the distribution.
- Sales Price - Enter the amount of the distribution.
- Select cost basis type - Choose Did not receive Form 1099-B.
- Cost - Leave blank.
Note: This is a guide on entering a nondividend distribution into TaxSlayer ProWeb. It is not intended as tax advice.