What is a dividend in accounting

Posting dividends - this is how it works

Trading stocks, while risky, is still growing in popularity with companies. Since dividends received represent an income, they must also be taxed. As the Booking of dividends works exactly, you can find out here.

  1. What are dividends?
  2. How does the tax authorities treat the dividend?
  3. Where do I declare the dividend in the tax return?
  4. How does the booking of dividends and taxes work?
  5. Example of booking dividends
  6. Example for posting capital gains tax

What are dividends?

In order to define what a dividend is, the concept of stock must first be clarified. The share gives its owner a membership in a company. It is a fraction of the share capital of a stock corporation. Either the value of a share is given by its nominal value in full euros, or it is a no-par share. Every no-par share in a company holds an identical proportion, which fluctuates depending on the company's value and the number of no-par shares. The dividend is a distribution of profits in the form of the profit share in a share. The profit share is based on the company share that the share quantifies. The dividend is based on the financial statements of the company that issued the shares.

How does the tax authorities treat the dividend?

The tax treatment of the dividend takes place as a profit distribution. Private individuals have to tax dividends differently than sole proprietorships, partnerships or corporations.

  • Private individuals whose shares are part of their private assets pay tax on dividends through the flat tax, which has been levied on private investment income since 2009. The final withholding tax is 25% of the profit.
  • Sole proprietorships and partnerships treat their dividends according to the partial income method. Accordingly, apply to capital income flat rate 25% in tax levies. The tax of 25% plus the solidarity surcharge of 5.5% (as of 2020) will be deducted before the distribution and paid directly to the tax office. The remaining amount is 40% tax-free.

Where do I declare the dividend in the tax return?

The Profit from a dividend indicate sole proprietorships and partnerships in their income tax return. A corporation, on the other hand, pays tax on profits via the corporate income tax return.

How does the booking of dividends and taxes work?

Dividend in accounting

The general accounts for dividends are referred to in the standard accounts SKR 03 and SKR 04 "Income from participations". In the SKR 03 account number is 2600, in SKR 04 it is 7000. There you enter the winnings that you have paid out.

Capital gains tax

Dividends and similar distributions by corporations are subject to capital gains tax. This is collected at the source. This means that your bank or corporation pays the tax for you directly to the tax office. Normally, the capital gains tax is 25% plus the solidarity surcharge. However, you can also apply for your investment income to be subject to the tax rates of your income tax. If this is less than 25%, then your dividends can be put under the lower tax. You can also submit an exemption order to your bank to make your dividends tax-free up to the tax exemption.

Posting capital gains tax

You enter the capital gains tax in the account SKR 03 in the account "Capital gains tax 25%" with the number 2213 in the debit (number 7630 in the account framework SKR 04). At the same time, the amount is credited to the “Bank” account with the number 1200 (SKR 03) or 1800 (SKR 04).

What should you watch out for when posting dividends?

When booking dividends, the accounting department must generally between Gross dividend, cash dividend and net dividend make precise distinctions. Because the gross dividend refers to the officially issued amount of the dividend. This is initially reduced by corporation tax, which the giver of the dividend has to pay. After deducting the tax, the so-called cash dividend remains as a payment amount. Since the recipient of a dividend also has to pay capital gains tax and the solidarity surcharge, the remaining amount is the net dividend, which is the amount credited by the bank. The bank automatically pays the tax and the solidarity surcharge to the tax office after deducting the amounts from the cash dividend.

Example of booking dividends

Mr. Grünwiese runs a horticultural company as a sole proprietor. He holds 40 shares in Blumenimport AG in the business assets of his company. The corporation made good profits and paid a dividend of 10 euros per share for the successful previous year. The resolution of the Annual General Meeting will be made on May 10, 2020. The payment from Blumenimport AG will be received on June 5, 2020 on the Grünwiese account.

What amount is credited?

For the receipt of his dividend, Mr. Grünwiese receives a statement in which the withholding tax paid and the solidarity surcharge are shown. The cash dividend paid by Blumenimport AG amounts to 400 euros for Mr. Grünwiese. For these, capital gains tax of 25% is due. The tax is 100 euros. The solidarity surcharge is 5.5% of the amount of capital gains tax and is therefore EUR 5.50. The net dividend that is credited to Mr. Grünwiese's account is shown at EUR 294.50.

How is the booking made?

The accounting uses the so-called for the booking of dividends Partial income method at. Since the dividend is distributed to the company, Mr. Grünwiese must use the procedure to correctly tax the income. The partial income method states that the cash dividend is to be treated as income from commercial operations and 40 percent of it is tax-free.

The accounting department carries the amount of the cash dividend in the amount of 400 euros in debit to the account with the designation Other claims a. The amount is divided into proportions of 60 and 40 percent. The accounting department then transfers the amount of 240 euros to the account on the credit side Taxable income (60%) and the amount of 160 euros in the account Tax-free income (40%) a.

After the dividend has been paid into the account, the payment amount of EUR 294.50 is posted to the account Bank. The difference includes the capital gains tax and the solidarity surcharge totaling 115.50 euros and is transferred to the account Private or Capital gains tax booked. The offsetting entry is made in credit with an amount of 400 euros on the account Other claims.

Example of posting capital gains tax

Mr. Rotbuche holds several shares for which dividends are paid into his account over the course of the year. In 2020, he received dividends of EUR 1,055. Since he is single, he enjoys an exemption of 801 euros after applying to the bank. Due to its exemption, the bank only pays capital gains tax and solidarity surcharges to the tax office for the remaining amount of 254 euros. The capital gains tax amounts to 63.50, while the solidarity surcharge is 3.49 euros. The total amount of capital gains taxes is therefore 66.99 euros. From the taxed dividends, Mr. Rotbuche has a total of 187.01 euros. After deducting capital gains taxes, he has earned a total of 988.01 euros in capital gains.

Posting capital gains tax

Mr. Rotbuche posts the amount of capital gains tax of 66.99 euros in debit to the account Capital gains tax and in credit on the account Bank.