When do you need to do a Form 2120, Multiple Support Declaration?

This form is rarely needed. You only need to do a Multiple Support Declaration if you are claiming someone other than a qualifying child as a dependent and there are two or more people including yourself who provide support for the dependent.

If you have a regular dependent (qualifying child) such as your son or daughter under age 19, you don’t need to file the Form 2120. The exact definition of a qualifying child is a child who is your son, daughter, stepchild, foster child, brother, sister, stepbrother, or a descendant of any of them such as a grandchild, niece, or nephew who was under age 19 at the end of 2009 or under age 24 and a student or any age and permanently and totally disabled who did not provide over half of his or her own support for 2009.

What is a qualifying relative?

If your dependent is a qualifying child, then they are not a qualifying relative. Most dependents are defined as a qualifying child. The short definition of a qualifying child is a child who is your relative who is under age 19 (or age 24 if a student).

A qualifying relative is someone who does not meet the definition of a qualifying child and who meets the following criteria:

Is your son, daughter, stepchild, foster child, grandchild, brother, sister, niece, nephew, father, mother, grandmother, grandfather, great-grandparent, aunt, uncle, stepbrother, stepsister, stepfather, stepmother, son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, sister-in-law, or any other person other than your spouse who lived with you all year as a member of your household. The dependent must have had a gross income of less than $3,650 during 2009. You and one or more other eligible persons together must have paid over half the dependent’s support.

Claiming a qualifying relative

Generally, to claim a person as a qualifying relative, you must pay over half that person’s support. However, even if you did not meet this support test, you may be able to claim him or her as a dependent if all five of the following apply:

1. You and one or more other eligible person(s) together paid over half that person’s support.
2. You paid over 10% of the support
3. No one alone paid over half of that person’s support
4. The other dependency tests are met

Each other eligible person who paid over 10% of the support agrees not to claim the person as a dependent by giving you a signed statement.

What are qualified dividends?

Qualified dividends are dividends that are eligible to be taxed at a lower tax rate. Enter the full amount of your dividends in box 1a as Ordinary Dividends. Then enter the amount of qualified dividends in box 1b. Qualified dividends are only a designation for determining how to tax the amount of ordinary dividends in box 1a. So if you enter 1000 in box 1a as ordinary dividends, and you enter 600 in box 1b as qualified dividends, only $1,000 will end up on your tax return as income. The $600 in qualified dividends will make it so $400 of your dividends are taxed at normal rates, and $600 of your dividends are taxed at a lower rate.

What is “sale price”?

If you sold stocks or bonds and you received a 1099-B from your broker, enter the amount shown on the 1099-B for the sale price. If you paid commissions on the sale, you would either reduce the amount of sale price by the amount of the commissions, or you would add the commissions paid to the cost basis of the asset sold. Either way works out the same for the net gain or loss. If you have a 1099-B, you will want to use the sale price shown on the 1099-B so that what you report as sales matches what your broker reported to the IRS.

What is “cost or basis”?

In general, the cost or other basis is the cost of the property plus purchase commissions and improvements. If you inherited the property, the cost basis is usually the fair market value of the property on the date of the decedent’s death, but special rules can apply. If you received the property as a gift, the cost basis is usually the same cost basis of the person who gave you the gift.

For example, if your mother gives you 100 shares of ABC stock, your cost basis would probably be whatever your mother paid to purchase the 100 shares of ABC stock. Special rules apply if the value of the property is less than the donor’s cost basis.

Can I report dividends from my credit union on a 1040EZ?

Yes. Report credit union dividends as interest income. Credit union dividends are treated as interest income and not dividends. So you can still use the 1040EZ if you have credit union dividends.
Do not enter IRA, 401K, or retirement plan investment income.
If you have an Individual Retirement Account (IRA), 401K, 403(b), or other type of tax-deferred retirement plan account, the interest income, dividend income, capital gains, and any other type of investment income earned in the retirement account do not get reported on your tax return.

What if my 1099-DIV only has an amount in box 8 or box 9?

Liquidating distributions are distributions you receive during a partial or complete liquidation of a corporation. If your 1099-DIV only has an amount in box 8 or box 9, you do not enter the information on the 1099-DIV web page. If it was a partial liquidation, there is nothing to report on your tax return. You adjust the cost basis of your stock or mutual fund by the amount of the partial liquidation shown in box 8 or box 9, then when you eventually sell the stock you will use the lowered cost basis as the purchase price of the stock.
If the liquidating distribution shown in box 8 or 9 is a complete liquidation, then report the amount in box 8 or 9 on the stock sale screen as a stock sale. For example, if your cost basis in stock in a company is $1,000 and the company is totally liquidated, then if you receive a 1099-DIV with box 8 showing $400 and you received nothing else from the liquidation, then you would report the stock as a sale on the stock sale screen and report $400 as the sales price and $1,000 as the cost basis in the stock that was completely liquidated.

What if I have expired options?

If you purchased options that expired without being exercised, enter zero as the sales price and the date of the expiration as the date of sale. Enter the cost basis and date purchased. On the next screen there will be a question that asks if the sale is for expired options. Answer Yes to that question on the next screen and the sale will be properly noted as expired options on your tax return.

What if I did not receive a 1099-INT, or I have lost my 1099-INT ?

If you know the amount of interest income you received, just enter the name of the bank or other institution from which you received the interest income and the amount of interest income you received. Many times, year-end statements or other documents besides the 1099-INT will show the amount of interest income you received for the year. You can call your bank or broker to find out the taxable amount of interest income you had for the year.

What are capital gain distributions?

Mutual fund companies report your share of the mutual fund’s capital gains on 1099-DIV as capital gain distributions. Capital gain distributions are different than ordinary dividends in that they are eligible for the reduced tax rate for stock gains.

What is tax-exempt interest?

Tax-exempt interest income consists of interest received from city or state bonds (municipal bonds).

What if I have worthless stock?

If you had stock that became worthless in 2009, treat the worthless stock (has no value) as being sold on the last day of the year for a sales price of zero. Enter the cost basis (amount you paid) of the stock and the date it was acquired. Enter December 31, 2009 for the date sold since worthless stock is considered to be disposed of on the last day of the year.