Liquidating dividend tax treatment
Liquidating dividend tax treatment
The payment of dividends must be formally approved by the company's board of directors, even if the company has a long history of quarterly payments; the same is true whether the dividends are paid in cash or property.
When a parent company develops a subsidiary internally, rather than through acquisition, the parent's inside and outside bases in the assets and stock of the subsidiary, respectively, are equal.
They generally are not immediately taxable if the total amount distributed to you is less than the amount you paid for your stock.
However, they do reduce your cost basis in the stock.
Also known as a dividend in kind, a property dividend involves the distribution of an asset other than cash to shareholders.
Generally Accepted Accounting Principles require property dividends to be recorded at fair market value, which is oftentimes different than the net book value of the asset.
When the transaction results in a gain, the seller's tax burden is determined by a number of factors, including whether or not the transaction is taxable, whether the seller is taxable or tax-exempt, whether the gain is taxed as ordinary income or a capital gain, the seller's holding period (how long the sold stock/assets were held by the seller before sale), and the applicable tax rate. The basis to be used in calculating taxes depends on how the transaction is structured.
Broadly speaking, acquisitions can be structured as either asset or stock sales.
The term property dividend refers to the formal distribution of an asset other than cash to holders of preferred or common shares of stock.
A property dividend can take many forms, including real estate, items held in inventory, equipment, and even investments held by the company.
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