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Tax Return Analysis: Using Qualified Dividends for Cashflow


Your question:

I was wondering why the Qualified Dividends (9b) on the personal tax returns are not included in tax analysis cash flow.

Linda says:

With the challenge of qualifying borrowers we want to find and include every source of recurring cashflow possible. Add to that, we add Line 8a Tax-exempt Interest so it is natural to assume we could also add Line 9a Qualified Dividends.

Qualified Dividends are not in addition to the dividends reported on Line 9a…they are a category of those dividends. And to be clear, Line 8b Tax Exempt Interest IS in addition to Line 8a and should be added. If you have been to my Tax Return Analysis Training for Lenders and Underwriters, you may recall me say (over and over again) that the IRS is simply not consistent in how they do things on these forms. Sad but true…

Here is the relevant paragraph from the instructions to the 1040:

Line 9b Qualified Dividends


Enter your total qualified dividends on Line 9b. Qualified dividends are also included in the ordinary dividend total required to be shown on line 9a. Qualified dividends are eligible for a lower tax rate than other ordinary income. Generally, these dividends are shown in box 1b of Form(s) 1099-DIV.

So Line 9b is necessary for the tax preparer to properly calculate taxes, but is not additional cashflow.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at www.LendersOnlineTraining.com, she speaks at banking associations on risk management, lending and director finance topics.