Companyies periodically pay shareholders a portion of their earnings and profits, known as dividends. You cannot use Form 1040EZ if you receive any dividend income, so you'll need to report the income on either Form 1040A, Schedule 1, or Form 1040, Schedule B. Ordinary dividends are the most common type of distribution from a company's stock. But if you have mutual funds, you might also receive capital gains distributions. A capital gain is any profit on the sale of an asset, like stock or real estate. In the case of mutual funds, when the fund itself realizes a long-term capital gain, it pays out a portion of that to account holders as a capital gains distribution.
Capital gains receive more favorable tax treatment than regular income.
And capital gains distributions are taxed under these guidelines. You'll have to report these distributions as long-term capital gains on your return regardless of how long you have owned the shares in the mutual fund. As for filing, this means you must file a 1040 because the 1040A only allows you to report ordinary dividends. Some institutions call their payments to you dividends, but the IRS classifies these distributions as interest. Credit unions Domestic building and loan associations Domestic savings and loan associations, Federal savings and loan associations, and Mutual savings banks.