# What is a One-Time, Non-Dividend Cash Distribution?

Distributions from investments come in a variety of flavors. While dividends and interest income are common, you could receive a non-dividend cash distribution from a stock or a mutual fund. If you get that kind of return you'll see the amount in box 3 of the annual Form 1099-DIV from the distributor.

## Distribution Definition

Dividends are defined as distributions of company income to shareholders. If a company distributes cash to investors in excess of their earnings and profits, they can't call it a dividend. Instead, it's referred to as a non-dividend cash distribution and is considered a return of capital. Non-dividend distributions reduce your basis in the stock -- its original value adjusted for stock splits, dividends and distributions. If the company's distribution amount per share is higher than your basis in the stock, you must record a capital gain for tax purposes.

## Capital Gains Calculations

To determine whether you need to pay capital-gains tax on your distribution, calculate your basis in the shares the distribution applies to. Let's say you paid \$1,000 for 50 shares of stock and received a \$200 distribution. Your original basis in the stock is \$1,000 divided by 50, or \$20 per share. Your adjustment is \$200 divided by 50, or \$4. Your new basis is \$20 minus \$4, or \$16 per share. Since the distribution is less than the basis, you don't have a capital gain and no tax is due.

## Reporting Distributions

If you didn't have a gain from your non-dividend distribution there's nothing more to do. The Internal Revenue Service (IRS) doesn't require taxpayers to report non-dividend distributions if they don't create a capital gain. That's usually the case because distributions tend to be smaller than the shareholder basis. However, ending up with a capital gain means you'll need to pay taxes on it. A capital gain is the amount by which the distribution exceeds your basis in the stock. For example, a \$1,300 distribution on a stock basis of \$1,000 creates a \$300 capital gain. Individual taxpayers report capital gains on Schedule D of IRS Form 1040.