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Tax question..Short stock and pay dividends
Old 03-24-2013, 05:05 PM   #1
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Tax question..Short stock and pay dividends

Has anyone ever been short a stock and had to pay the dividends? I'm wondering how to handle this on my tax return. I have a 1099-DIV from my broker which lists all the dividends I collected but the dividends that I paid out are only accounted for at the bottom of the form under a section that says "2012 Other Distributions & Charges detail". It lists margin interest that I paid as well as the dividends that I paid.

Since my tax return has to match the 1099-DIV that the broker sent to the IRS, I cant just subtract out the dividends I paid. Anyone know how to handle this?
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Old 03-24-2013, 05:53 PM   #2
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Google shows me these links that seem to answer the question, including one that quotes IRS pub 550:

Dividends Paid on Short Sales
Tax Planning: Tax treatment of short sale dividend payments., irs publication 550, dividend payment
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Old 03-24-2013, 06:12 PM   #3
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I wasn't aware of the rule, so I added them to the cost basis of the short sale. Which appears to be correct if you hold the stock for 45 days or less (how do they come up with this arbitrary date why 45 days? IIRC I held the position longer than that, oh well.
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Old 03-24-2013, 09:38 PM   #4
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Quote:
Originally Posted by clifp View Post
I wasn't aware of the rule, so I added them to the cost basis of the short sale. Which appears to be correct if you hold the stock for 45 days or less (how do they come up with this arbitrary date why 45 days? IIRC I held the position longer than that, oh well.
Did you use Turbo Tax? It allows you to adjust the cost basis, but I'm wondering how you let the IRS know why you're doing it. Now that brokers are reporting cost basis to the IRS, I anticipate a possible problem even though its legit.
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Old 03-25-2013, 02:54 AM   #5
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Yes I did use Turbo Tax. Last year the cost basis wasn't reported so I just did it.
This year I don't know, I didn't have to pay any dividends for short stocks.

I guess I'd just make a line note using TT. If it flags an issue then show it to the IRS deal with it them. My guess is your schedule D has lots of transaction enough the IRS agents eyes would glaze over at whatever the computer flagged.
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Old 03-25-2013, 09:06 AM   #6
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My guess is your schedule D has lots of transaction enough the IRS agents eyes would glaze over at whatever the computer flagged.
That's not my experience. I missed reporting one stock sale once, and got a letter pointing out that the 1099-Bs reported didn't match my schedule D. I found the missing transaction but was still about $8K off in proceeds. I submitted the amended return with a note that if it still didn't add up would they please list the transactions they show for me so I can see what's missing. They just came back with a letter that I was still $8K short. I called and got someone to step through each one with me and she confirmed I had them all, and made a note in my case and it was finally done. The point is, the computer doesn't glaze over, it will kick it out. The agents then may glaze over but only after they have sent the bill.

That was on proceeds. The basis may be different because older transactions still aren't reported so it will be years before they expect them to completely match in most cases.

In any case, keeping a note is probably the best you can do, and it will probably be fine.
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