Understanding Your Tax Form

What are qualified and non-qualified dividends?

There are two main types of dividends issued to ETF investors: qualified and non-qualified dividends. If you hold shares in an exchange-traded fund (ETF), you may receive dividend distributions, which can be paid monthly or at other intervals, depending on the ETF. It's important to know that not all dividends are treated the same from a tax perspective. The two primary types of dividends for ETF investors are:

Qualified dividends

These are dividends designated by the ETF as qualified, which means they qualify to be taxed at the capital gains rate, which depends on the investor’s modified adjusted gross income (MAGI) and taxable income rate (0%, 15% or 20%). These dividends are paid on stock held by the ETF, which must own them for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. Moreover, the investor must own the shares in the ETF paying the dividend for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date. This means if you actively trade ETFs, you may not be meeting this holding requirement.

Nonqualified dividends

These dividends are not designated by the ETF as qualified because they might have been payable on stocks held by the ETF for 60 days or less. Consequently, they're taxed at ordinary income rates. Basically, nonqualified dividends are the amount of total dividends minus any portion of the total dividends treated as qualified dividends.  Note, while qualified dividends are taxed at the same rate at capital gains, they cannot be used to offset capital losses.

Other ETF distributions

Depending on the ETF, some distributions may not be classified as qualified dividends. Here are a few examples of other types of distributions from ETFs:

Fixed Income ETFs

These ETFs provide interest payments instead of dividends.

Real Estate Investment Trust (REIT) ETFs

These typically distribute non-qualified dividends, although a portion may be qualified.

Dividend ETFs

A dividend ETF consists of dividend-paying stocks and typically tracks a dividend index. It distributes dividends to investors, which may be classified as either qualified or non-qualified.

Reinvesting ETF dividends

You have the option to reinvest your ETF dividends by purchasing additional shares of the same ETF. However, there may be commissions associated with this reinvestment. Be sure to check with the brokerage firm or financial institution where you hold your ETFs for specific details.

Reporting dividends

The brokerage firm or financial institution holding your ETFs is required to report any dividend payments of $10 or more on an annual basis. Some institutions automatically report all dividends. This is done using Form 1099-DIV, Dividends and Distributions.

Some of my sales show no cost basis. Why?

There are a couple reasons why a cost basis might not be reported on form 1099:

Non-covered securities

Non-covered securities are those for which Webull is not required to track and report the cost basis to the IRS. This often includes securities purchased before 2011 or those from certain types of transactions. As a result, if you sell non-covered securities, the 1099-B might report the sale proceeds but omit the cost basis, leaving you responsible for calculating and reporting it. The cost basis would typically be reported on IRS form 8949.

Missing basis information due to transfers

Cost basis information may be absent during an incoming asset transfer if it was not transferred with the securities or was inaccurately recorded. Consequently, the 1099-B issued by Webull may not display a cost basis for those transactions. In such situations, you may need to reconstruct the cost basis using records from the previous brokerage. Alternatively, you can request the delivering broker to resend the cost basis data to Webull, which usually takes 10-15 business days.

What is total cost, proceeds, and wash sale disallowed?

Total cost

Total cost refers to the total amount you originally paid for an asset, which is used to calculate capital gains or losses. This figure includes the purchase price of the asset plus any associated costs, such as commissions or fees. Note that this figure represents the aggregate amount, summing all buy-side transactions throughout the tax year.

Total proceeds

Total proceeds refers to the total amount received from the sale of an asset. This figure includes the sale price of the asset, minus any selling costs or commissions. Note that this figure represents the aggregate amount, summing all sell-side transactions throughout the tax year.

Wash sale disallowed

To learn more about wash sales, please visit Understanding wash sales.