My son (an American citizen) moved to the USA (Houston, Texas) four years ago where he lives (wife and two chIldren)and works. Occasionaly he receives a dividend from our family company which was once an operating company but now only holds investments. He is a 5% holder of preferred shares.
For 2013 he received a $40,000 dividend with 15% (6,000) was withheld (34k net). Now he has emailed me this and I don't know to answer ... can you help:
[i]'To apply for the 15% rate on dividends, it has to be a "qualified" dividend. My accountant was not sure that this was the case (because it is a foreign corporation)'[/i]
What should I tell him?
Qualified dividend
Moderator: Mark T Serbinski CA CPA
Unless he knows it is a qualified dividend, he can't claim it is. It is your firm, so you would have to be in position to know. Get your accountant to determine if it is, and you will know going forward. That is his job.
Remember that your son reports the whole 40K on his return, not the net amount. The $6K in tax is a credit on form 1116 (passive income).
Remember that your son reports the whole 40K on his return, not the net amount. The $6K in tax is a credit on form 1116 (passive income).
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
A PFIC is a foreign corporation with more than 50% of its assets as "passive" assets or more than 75% of its income from "passive" income. Generally, investment-type income (such as dividends, interest, gains on sales of shares, etc.) is passive income for this purpose. Assets that generate passive income (or no income) are passive assets. Take a look at Form 8621 and its instructions.
In conjunction with assigning your son reading on PFIC, get him to read Publication 550, Investment Income and Expenses, for a definition of qualified dividends. also se Qualified foreign corporation and foreign dividend info.
Dividends can either be classified as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.
To qualify for the maximum rate, all of the following requirements must be met.
•The dividends must have been paid by a U.S. corporation or a qualified foreign corporation.
•The dividends are not of the type listed later under Dividends that are not qualified dividends .
•You meet the holding period (discussed next).
Holding period. You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it.
Qualified foreign corporation. A foreign corporation is a qualified foreign corporation if it meets any of the following conditions.
1.The corporation is incorporated in a U.S. possession.
2.The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Department of the Treasury determines is satisfactory for this purpose and that includes an exchange of information program.
3.The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States.
Dividends can either be classified as ordinary or qualified. Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates.
To qualify for the maximum rate, all of the following requirements must be met.
•The dividends must have been paid by a U.S. corporation or a qualified foreign corporation.
•The dividends are not of the type listed later under Dividends that are not qualified dividends .
•You meet the holding period (discussed next).
Holding period. You must have held the stock for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. The ex-dividend date is the first date following the declaration of a dividend on which the buyer of a stock is not entitled to receive the next dividend payment. When counting the number of days you held the stock, include the day you disposed of the stock, but not the day you acquired it.
Qualified foreign corporation. A foreign corporation is a qualified foreign corporation if it meets any of the following conditions.
1.The corporation is incorporated in a U.S. possession.
2.The corporation is eligible for the benefits of a comprehensive income tax treaty with the United States that the Department of the Treasury determines is satisfactory for this purpose and that includes an exchange of information program.
3.The corporation does not meet (1) or (2) above, but the stock for which the dividend is paid is readily tradable on an established securities market in the United States.