How to Report Short Dividends

[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

[VickyD10]

Hi Dave,

The 1099-DIV did not show any dividends that I should report, it is Zero. However, it shows a negative amount of foreign tax. In summary, RH recorded that I paid dividends (not received) and the foreign tax associated with the dividend I paid. 

[VickyD10]

To clarify, under the Reconciliations, Fee and Expense (The amounts in this section are not reported to the IRS) They are presented here for your review reference when preparing your income tax return), RH shows:

Fee & Expenses - Dividends paid on short position          $10K

And nothing else.

Under Dividend & Distribution (1099-DIV)

Line 1 a, b Dividend                           $0

Line 7- Foreign Tax Paid                   - $2.5K

[DaveF1006]

It depends. I am not sure why this is reported but I would ignore it as this Turbo Tax article states. As one of the users stated, this is informational to you because because the tax paid is a subtraction from your account balance.

Since there are no dividends reported on the 1099 DIV, then you would not report the 1099 DIV on your return.

Unfortunately , you would not be able to claim the fee and investment expenses on your return because investment expenses are no longer deductible because of 2018 Tax Cuts and Job Acts.

[VickyD10]

Hi,

Bottom line, because I did a short sell, RH indicated in the information section that I paid $10K of dividends and received $2.5K foreign tax (negative 2.5K tax paid), they did not adjust the basis of my transaction so that RH reported a gain to the IRS. My original question was, do I report an adjustment basis of 7.5K (10K-2.5K) in Turbo tax for the stock transaction, so that it will reflect the correct amount of gain and loss that should be reported to the IRS. RH had reported a gain, I had the loss instead. 

[DaveF1006]

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.
 

1. Go to Federal
2. Deductions and credits 
3. Estimate and other taxes paid 
4. Foreign Tax Credit>start or revisit
5. 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. 
6. 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.
7. The first that you will be asked is what category of income is it, you will say Passive income.
8. Next screen will say Country Summary, select add a country 
9. When it says Other Gross Income - XXXX, Here you put in the Gross Amount you earned in that country. 
10. 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)
11. Don't report this as a negative number.
12. Finish out the section.

[VickyD10]

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.