An individual may also receive distributions such as additional stock, stock rights, or other property or services. However, you must report all taxable dividends even if you do not receive a statement. The 1099 dividends statement shows your ordinary dividends nontaxable distributions, and capital gain distributions. Ordinary dividends are the most common type of distribution from a corporation. They are paid out of the earnings and profits of the corporation.
All ordinary dividends are fully taxable.
Nontaxable distributions can be made in the form of a return of capital or a tax-free distribution of additional shares of stock or stock rights. A return of capital is a return of some or all of your investment in the stock of the company. For information on Basis of Assets see Topic 703 . A return of capital reduces the basis of your stock and is not taxed until your basis in the stock is fully recovered. Once the basis of your stock has been reduced to zero, any further return of capital is a capital gain.