Liquidating distribution tax
Internal Revenue Service Form 1099-DIV, Dividends and Distributions, is a recordkeeping document that shows stock distributions received during the year.
While corporations most often issue 1099-DIVs to report stock dividend distributions, it can also be used to report nondividend distributions, including money a corporation returns to an investor during the liquidation process.
Liquidation is the process of discontinuing a company, selling the assets and using the proceeds to pay creditors and shareholders.
Investors receive payments of their initial investment or current share of ownership after creditor liabilities are satisfied.
The company would send me a 1099 tax form filled "only" with Col-8 for Cash distribution / Liquidation. These distributions are, at least in part, one form of a return of capital. You will receive Form 1099-DIV from the corporation showing you the amount of the liquidating distribution in box 8 or 9, in your case they were cash in box 8.
Any liquidating distribution you receive is not taxable to you until you have recovered the basis of your stock.
You might choose partial liquidation if a segment of your company is discontinued because it was destroyed.
The company can distribute the unused insurance proceeds recovered as a result of the destruction in exchange for its shareholders’ stock, qualifying as a partial liquidation distribution.
Whether you report the gain as a long-term or short-term capital gain depends on how long you have held the stock.This distinguishes a liquidating dividend from regular dividends, which are issued from the company's operating profits or retained earnings. A liquidating dividend may be made in one or more installments. S., a corporation paying out liquidating dividends will issue to its shareholders a Form 1099-DIV showing the amount of the distribution.Despite the tax advantages, investors who receive liquidation dividends often find that they do not cover their initial investment.If the governing state allows dissolved corporations to retain assets, the corporation can continue to exist.Liquidation marks the point when a corporation has committed to closing its doors.
The shareholders assume any remaining company debt, becoming responsible for prioritizing and paying off that debt.