Adjusting reclassified Dividends

Mutual Funds, REITS, and other non-standard stocks may reclassify dividends at the end of the year. What was previously listed only as dividends may suddenly show up on the 1099 as a mix of dividends, capital gains, Return of Capital, etc.

In myICLUB.com, this can be handled by editing existing transactions. In Desktop Club Accounting 3, you will need to edit the original transaction, as well as enter a new one.

While most clubs will see this happen for cash dividends, it's also possible for a club to see this happen with a reinvested dividend.

The first set of steps below are for regular cash dividends.

If you need to handle reinvested dividends being reclassified, please click here, to jump to that section of the page.


To be classified as a dividend a company must have sufficient current and retained earnings to pay the dividend. If not, any portion not covered by current and retained earnings is a return of capital to those receiving the distribution. Brokers often show these return of capital distributions as ‘non-dividend distributions’ on their 1099. The tax treatment of dividends and return of capital are different. If your club holds a REIT, you may also see a listing for Section 1250 Gain on the 1099; this is entered as capital gain in the accounting system.

Here is the suggested way to handle this situation, using myICLUB.com:

Edit the original dividend transaction. If you aren't sure how to edit a transaction, please see our FAQ on Editing/Removing transactions: https://www.iclub.com/faq/Home/Article?id=476

In the online program, myiclub.com, there is now the ability to split the cash distribution into multiple types. There is a link with a title that includes ADD ANOTHER DISTRIBUTION TYPE. These non-dividend distributions are entered as Return of Capital distributions in the program. As noted previously, any Section 1250 Gain would be entered as a capital gain.

Enter the amounts reported on the 1099 for dividend in the section for dividends and non-dividend distribution in the added section by changing the TYPE to return of capital.

If you have both a return of capital, and Section 1250 gains, you can always click the ADD ANOTHER TYPE link again.

Save the transaction.

Now you will have received cash equal to the original dividend entry. The original amount will be split between dividend and return of capital.

In the example below, FTNT originally had a 100 dividend. That dividend was reclassified at the end of the year, to make 20.00 a non-dividend distribution, and 30.00 a Section 1250 unrecaptured capital gain.

If you are using the desktop version of the software, Club Accounting 3 here is how to make the accounting adjustments.

Edit the original dividend entry. Lower the dividend amount to match the 1099 information.

Enter a new cash distribution. Date this transaction the same day as the original dividend. Change the TYPE field to return of capital. Enter the amount shown as non-dividend distribution on the 1099. As before, this can also be done for any Section 1250 Gain listed on the 1099

Keep in mind that these changes should be made before running your year-end allocation. If you have already completed an allocation, and then make these changes, the allocation must be re-done, in order for the changes to be reflected. For steps on how to do this, please see FAQ 1044 at: https://www.iclub.com/faq/index.php?solution_id=1044 , or the sllide show version, at https://www.iclub.com/faq/index.php?solution_id=1445.


To be classified as a dividend a company must have sufficient current and retained earnings to pay the dividend. If not, any portion not covered by current and retained earnings is a return of capital to those receiving the distribution. Brokers often show these as return of capital distributions as ‘non-dividend distributions’ on their 1099. The tax treatment of dividends and return of capital are different. As in the previous instructions, the steps below can be adjusted if your club received anything listed as a Section 1250 Gain.

 

Handing a reinvested dividend being reclassified, using myICLUB.com:

Delete the original reinvested dividend entry

Treat the distribution as a cash distribution and use the cash distribution entry screen. In the online program, myiclub.com, there is now the ability to split the cash distribution into multiple types. There is a link with a title that includes ADD ANOTHER DISTRIBUTION TYPE. These non-dividend distributions are entered as return of capital distributions in the program.

Now you will have received cash equal to the original dividend entry. The original amount will be split between dividend and return of capital.

Now enter a buy transaction for the original number of share received in the reinvested dividend. The total cost of the buy will be the original dividend amount. The source of funds will be whatever account was used to receive the cash distribution mentioned above.

This method will give you only 1 block purchased for each reinvested distribution.

 

Handling a reinvested dividend being reclassified, using the desktop Club Accounting 3 program.

Make note of the amount of the cash dividend, and the number of shares from the original reinvested dividend entry, and then delete it.

You will now need to make two entries to account for the part of the dividend that remains a standard dividend, and the part that was reclassified. Both transactions will start by going to Transactions > Dividend or Distribution

For the part that was reclassified, make sure to use the Type drop-down menu on the page where you enter the transaction. Change it to Return of Capital, Capital Gain, etc. as needed. Use the same dates as the original dividend.

Once you have entered any recalssified parts, then enter a standard cash Dividend, for any remaining amount. Whatever you enter for the standard cash dividend here, should not add up to more than the original dividend that the club received.

For example, if your club received a 5.00 dividend earlier in the year, and then found that 1.50 was reclassified as a Return of Capital on the 1099, then you would make one Return of Capital entry for 1.50 , and one standard cash dividend for 3.50.

Finally, enter a buy transaction for the whatever shares the club received in the original dividend, for that original dividend amount. In the previous example where your club received a 5.00 dividend during the year, that is the amount you would use when entering the Buy transaction for the fractional shares.

Keep in mind that these changes should be made before running your year-end allocation. If you have already completed an allocation, and then make these changes, the allocation must be re-done, in order for the changes to be reflected. For steps on how to do this, please see FAQ 1044 at: https://www.iclub.com/faq/index.php?solution_id=1044 , or the sllide show version, at https://www.iclub.com/faq/index.php?solution_id=1445.