Question

ABC corporation declared a dividend for taxpayers of record as of December 24, 2014. The dividend checks were mailed on December 31, 2014. Ed, a cash basis shareholder, received the dividend check on January 2, 2015. When should Ed report the income from the dividend?

1) December 24, 2014
2) December 31, 2014
3) January 2, 2015

Answer 1

Ed, as a cash basis taxpayer, must report the dividend income on January 2, 2015, when he actually received the dividend check.

Step-by-step explanation:

The question relates to when a cash basis shareholder should report dividend income. According to the Internal Revenue Code, cash basis taxpayers must report income in the year it is actually or constructively received. In the scenario provided, Ed, being a cash basis shareholder, should report the dividend income when he actually receives the check. Therefore, the correct answer is that Ed should report the income from the dividend on January 2, 2015, the day he received the check.