Liquidating dividend tax
Amounts above and beyond the investors' cost basis is a taxable distribution.Credit unions send this sort of distribution to their depositors when they are liquidated as well. When he receives his payment of , it does not cover his original cost basis in the stock, so Ernie has a loss of .A cash liquidation distribution is the amount of capital that is returned to the investor or business owner when a business is liquidated.When a company goes out of the business and the company assets are liquidated, money is returned to investors per the capital structure of the business.Proceeds from a cash liquidation distribution can be either a non-taxable return of principal or a taxable distribution, depending upon whether or not the amount is more than the investors' cost basis in the stock. When Bert receives a cash liquidation payment of , of that is a return of capital and is not taxable.
If the amount the investor receives is less than their original cost basis invested in the stock, the investor may report a capital loss which reduces their tax bill.
As of 2010, the federal tax rate for long-term capital gains was 15 percent, a rate favorable to those whose stock increased in value after purchase.
Corporations, however, do not receive such favorable terms when selling assets. Cash paid to shareholders upon liquidation is also taxable.
Shareholders might prefer to sell their stock, but buyers might be more interested in the assets.
Sales of stocks produce either a capital loss or gain.
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Statements are normally issued to shareholders listing the fair market value of all assets distributed.