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. Ed cannot delay reporting the income from the dividend until 2015. When should Ed report the income from the dividend?

1) December 24, 2014
2) December 31, 2014
3) January 2, 2015
4) 2015

Answer 1

Ed, a cash basis shareholder, must report the dividend income in the year he received the check, which is 2015.

Step-by-step explanation:

The question relates to when Ed, who is a cash basis shareholder, should report the income from the dividend received from ABC Corporation. According to the tax principles for cash basis taxpayers, income is reported in the year it is received. Since Ed received the dividend check on January 2, 2015, despite the dividend declaration date and the mailing date being in December 2014, he should report the dividend income in the year 2015. This corresponds to option 4 in the original question: 2015 is when Ed should report the income from the dividend.