Corporate dividends are distributions of money, stock, or other property paid to you because you own stock in that corporation. Most dividends are paid in cash, however, some are paid in stock or other property. An individual may also receive dividend distributions such as additional stock, stock rights, or other property or services. You must report all taxable dividends on your IRS tax return even if you do not receive a tax statement. The IRS tax form 1099-DIV will break down total gross dividends into several categories, such as 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 and must be reported on your IRS tax return. 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. What you paid for the stock is your original basis in the stock.