Where to report Section 199A dividends
Receiving notice that your taxes are being audited is a stressful experience for individuals and business owners. The IRS conducted more than 700,000 tax audits in 2022. The best way to avoid audits when filing taxes is to know how to report all types of income.
Knowing the different types of dividends is an excellent start, but many investors struggle to know where to report Section 199A dividends. Learning the basics will save you time, energy, frustration, and money. It’s a great way to enjoy the tax season stress-free.
Hiring a tax expert is a great option when preparing your taxes, but learning about reporting dividends will help you save money and file alone. Luckily, you’re in the right place to learn more about 199A dividends and where to report them when filing. Keep reading to avoid a costly audit today!
199a What are dividends?
Section 199A dividends get their name from Section 199A of the IRS’s tax code. It was passed in 2017 when the US Congress passed the Tax Cuts and Jobs Act. Its purpose is to provide more pass-through income to businesses.
One of the important elements of the Act is the 20 percent deduction provided to specific investors. You can deduct 20 percent of your earnings when you invest in domestic real estate investment trusts.
You will want to report your dividends in the Section 5 box on your Form 1099-DIV document. A tax expert will guide you through the process to ensure a smooth tax session. They are a subset of the other types of dividends you would report in Box 1A.
It’s worth noting that your Section 199A dividend does not offset your adjusted gross income. Still, it’s a great way for investors to save money when filing taxes.
Section 199A Dividend Tax Deduction
In addition to learning where to report Section 199A dividends, it’s also worth paying attention to which tax deductions you qualify for. The general rule of thumb is deducting 20 percent of your income from domestic REITs.
It differs from other types of income on your taxes because it is not affected by the amount of money you earn and which tax bracket you are a part of. Your 199a dividends are protected from taxation, while self-employment income is not.
Section 199A Who pays dividend?
Individuals who own shares in real estate investment funds must report income through dividends from these investments. This is a unique type of investment, which makes tax filing more challenging.
It is an investment completely focused on real estate. Investors can buy a stock in a REIT or mutual fund that consists of all real estate investments.
This is an excellent investment if you want to benefit through the IRS’s tax code. Ninety percent of the income from REITs is distributed to investors through dividends. This is one of the best investment opportunities to grow wealth through dividends.
Where to report Section 199A dividends
There are three places to pay attention when reporting dividends from Section 199A on your tax return. The first place to write down your earnings is Box 1A on your Form 1040. They are classified as ordinary dividends and must be reported on Line 3b of Form 1040.
It is important to note that your Section 199A dividends are not qualified dividends. Avoid reporting them on Line 3A to ensure accurate filing. You can also refer here for Conservation Dividend.
The next place to report your dividends is Line 6 of Form 8995 or Line 28 of Form 8995-A. This is the best approach when filing taxes with tax preparation software.
When filing, you’ll also want to claim your earnings from dividends on Line 13 of your Form 1040. This is the best way to file accurate taxes come April.
Tips for Hiring a Tax Expert
Hiring a tax expert is a good option if you are new to filing taxes with dividends and other investments. The process quickly becomes confusing, but a tax expert will guide you and provide the knowledge to file alone in the future.
It is worth researching when looking for a tax expert or accountant to assist with reporting dividends. The wrong appointment can result in a costly and unpleasant experience, which could end in an audit from the IRS.
Here’s a look at the tips you should use to make sure you get the help you need when learning where to report Section 199A dividends.
1. Check Credentials
Credentials will tell you a lot about what to expect when you hire a tax professional to help you prepare and file your taxes. It is easy for individuals to claim that they are tax experts, but authenticity adds credibility to those claims. Checking credentials is the best way to avoid fraud.
You can be sure that you are working with a tax expert with the experience and education to help you save money and avoid audits. Search engines are an effective way to find experienced and reputable tax preparers near you.
2. Check Business Records
Business records are also beneficial in obtaining information about a tax preparer’s career. You are giving the preparer access to your financial information and Social Security number. It’s best to find a tax preparer you can completely trust.
A qualified tax expert is an excellent start, but qualification does not equal trust. The combination of creditworthiness with a solid professional reputation is ideal for obtaining assistance when filing your taxes in April.
A tax specialist’s current licenses are also beneficial when narrowing your options. You can search for disciplinary measures taken against them for past actions. The punitive measure is a notable red flag that you should not ignore when comparing your options and learning where to report Section 199A dividends.
3. Prioritize questions
The best tax preparers ask a lot of questions during the consultation. If you’re attending a tax preparation consultation, pay attention to whether the preparer asks questions about your finances.
The tax expert asking the questions should give you confidence that they know what they are doing. This is also beneficial because it shows that you have found a tax preparer who wants to help you. Their expertise can save you thousands of dollars when tax season comes.
4. Consider the cost
Cost is an important factor when limiting your tax preparation options. Ask about the cost structure when you meet with your accountant for your consultation. Knowing the total cost of tax preparation services will give you a complete picture of the value you are getting for your hard-earned cash.
Breakdowns are helpful because they show you each part of the service you’re paying for. It is also beneficial to ask about the pricing model. Some tax preparers work on an hourly rate, and others charge per tax return.
The best tax experts are transparent about all fees. If the tax preparer you are considering is unwilling to disclose his or her prices, consider other options.
The primary factors determining the final cost are complexity, numbers, and where you live. It’s best to understand all the expenses you’ll face when hiring someone to file your taxes. When looking for an expert to file your taxes, you need to know how much you will pay.
5. Seek knowledge
The work and learning of tax experts never ends. The tax code in the United States is constantly changing, including state and local codes and regulations. It’s a lot for one person to remember, but the best tax preparers stay on top of the changes.
Paying full price for a tax expert with outdated information wastes hard-earned money—researching to determine if your favorite tax preparation service has followed the changes in tax law.
Without this information the preparer may miss out on deductions and credits you are eligible for. They will also make notable errors when filing your taxes. Mistakes can lead to IRS audits and hefty fines.
6. Ask about e-filing
The traditional option of filing your taxes via mail is effective, but technology has raised the bar on tax filing for millions of people in America. Finding a tax preparation service that offers e-filing options saves significant time and stress.
You will not need to ensure that you deposit your taxes at the post office by a specific date. A tax preparer will help you file online and set up direct deposit into your bank account for your tax return.
7. Know the red flags and avoid them
Before choosing your tax expert, look for red flags and warning signs. Tax preparers cannot charge a fee based on the amount of money you pay in taxes during the year. This is a direct violation of the Tax Preparation Code.
It’s also a red flag if the tax preparer compiles your return without requesting more documentation. Choosing to proceed is against the law. Tax return promises are another signal to look elsewhere for tax help.
Now you’re ready for tax season
Learning the basics of tax filing and knowing where to report Section 199A dividends is a great way to avoid an audit from the IRS and save more money during tax season. The best place to report dividends is the Section 5 box on your Form 1099-DIV. You can also report your earnings on Line 6 of Form 8995.
Tax season is a source of stress and sleepless nights for many people. Take control of your finances with our finance guides and articles today!