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Amend return if broker makes 1099 error

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in Employment Law,Human Resources,Small Business Tax,Small Business Tax Deduction Strategies

Q: As always, I mailed my 2003 tax return as soon as possible. But soon after I mailed it, my broker sent me a corrected Form 1099 that restated dividend income. Do I have to file an amended return, even though it was the brokerage firm's error? K.R., Crawfordsville, Ind.

A: Yes, but you won't be alone. Due to last year's tax law changes to dividends, the IRS expects a higher-than-normal error rate with 1099s, causing more people to file amended returns. The new law cut the maximum tax rate for dividends to 15 percent for taxpayers (the same as the maximum tax rate on long-term capital gain) retroactive to the beginning of 2003. But not all dividends qualify for this tax break—a fact that causes much confusion. For instance, most dividends from real estate investment trusts (REITs) are still taxed at ordinary income rates. Another reason for confusion: The lower tax rate on capital gains applies only to sales made after May 5, 2003. For more advice on the tax treatment of dividends and capital gains, access IRS Publication 550, Investment Income and Expenses, at

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