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Foreign Tax on investments should be a MISC EXP, not WITHDRAW

Joseph Arden

When downloading investment transactions, foreign tax transactions should reference the associated security. Currently, Quicken downloads the foreign tax transactions (in my case, from Charles Schwab) into my investment account as a Withdraw. While this is not terrible, it does not preserve the security with the transaction. Instead, Quicken should record these as Misc Expense transactions (category can be Tax:Foreign Tax or left blank for the user to fill out).

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Comments

mshiggins

You should contact the financial institution. Transaction content for investments is provided by the FI.

Jim_Harman

What type of security is this? Are they actually selling shares of the security to generate the cash to pay the tax?

For a mutual fund, the tax would normally be paid inside the fund and would reduce the NAV but would not show up as any sort of transaction.

Joseph Arden

It's just a standard purchased security in my investment account. It actually happens quite frequently as I hold several foreign securities (examples, are Accenture PLC and Medtronics PLC). The investment account has a cash component so the funds are taken directly from the cash in the account. On my Schwab transaction history it would display like this:

Date Action Symbol Description Amount
11/15/2018 Foreign Tax Paid ACN ACCENTURE PLC FCLASS A -$175.20

NotACPA

It's just a standard purchased security in my investment account. It actually happens quite frequently as I hold several foreign securities (examples, are Accenture PLC and Medtronics PLC). The investment account has a cash component so the funds are taken directly from the cash in the account. On my Schwab transaction history it would display like this:

Date Action Symbol Description Amount
11/15/2018 Foreign Tax Paid ACN ACCENTURE PLC FCLASS A -$175.20

Joseph,
I'm confused. Are you running Q Canada? Because Accenture is a US based company. Their headquarters are in Virginia, just outside of Washington DC.

SO, why is there a Foreign tax issue?

Joseph Arden

It's just a standard purchased security in my investment account. It actually happens quite frequently as I hold several foreign securities (examples, are Accenture PLC and Medtronics PLC). The investment account has a cash component so the funds are taken directly from the cash in the account. On my Schwab transaction history it would display like this:

Date Action Symbol Description Amount
11/15/2018 Foreign Tax Paid ACN ACCENTURE PLC FCLASS A -$175.20

Accenture was re-incorporated in Dublin in 2009 as part of a tax inversion (so now they are "officially" Accenture PLC, however, they still market as Accenture). Same with Medtronics (Medtronics PLC).

NotACPA

It's just a standard purchased security in my investment account. It actually happens quite frequently as I hold several foreign securities (examples, are Accenture PLC and Medtronics PLC). The investment account has a cash component so the funds are taken directly from the cash in the account. On my Schwab transaction history it would display like this:

Date Action Symbol Description Amount
11/15/2018 Foreign Tax Paid ACN ACCENTURE PLC FCLASS A -$175.20

This thread caused me to take a look at the Div and Foreign Tax issue for some Ferrari (and FIAT) that I own.

In the transaction dialog box, I chose Misc Exp (as shown) ... but in the investment log is show "Withdraw".

I can't test the Tax Impact of this ... because all of my foreign stock are held in a Rollover IRA. But, it might be worth looking into.

q_lurker

The OP (Joseph Arden) is on the right track and has the concept right. Foreign-owned companies trading on US exchanges (usually as ADRs) that pay US dividends often withhold an additional amount of the dividend (10 to 15%) and pay that as a tax in their home country. So the US investor or shareholder might receive a cash dividend of $100 but also pay $15 simultaneously as a foreign tax. His net from the two is $85. (IMO) That $15 is best accounted for in Quicken as a MiscExp transaction.

Mutual funds typically bypass that detail at dividend payment time effectively only reporting the net $85 dividend. They make up for it on the 1099 year end data when the increased dividend is reported along with the foreign tax payment.

msHiggin is also correct that it is the financial institution reporting this as a Withdrawal rather than as a MiscExp. That is where the complaint needs to be registered. Brokerages I have worked with have regularly reported those as MiscExp, as best I can recall.

Handling this as a MiscExp categorized to Taxes:Foreign or similar will get everything right for tax summary reports and tax schedule reports. I don't use the Tax Planner module so I can't comment on that interaction. The problem I would have with the Withdrawal transaction is that it is less likely to get properly attributed to the applicable security.

My QW2017 keeps the transaction as a MiscExp. NotACPA's screenshot suggests this is a change for QW2019 (or 18?).

Joseph Arden

The OP (Joseph Arden) is on the right track and has the concept right. Foreign-owned companies trading on US exchanges (usually as ADRs) that pay US dividends often withhold an additional amount of the dividend (10 to 15%) and pay that as a tax in their home country. So the US investor or shareholder might receive a cash dividend of $100 but also pay $15 simultaneously as a foreign tax. His net from the two is $85. (IMO) That $15 is best accounted for in Quicken as a MiscExp transaction.

Mutual funds typically bypass that detail at dividend payment time effectively only reporting the net $85 dividend. They make up for it on the 1099 year end data when the increased dividend is reported along with the foreign tax payment.

msHiggin is also correct that it is the financial institution reporting this as a Withdrawal rather than as a MiscExp. That is where the complaint needs to be registered. Brokerages I have worked with have regularly reported those as MiscExp, as best I can recall.

Handling this as a MiscExp categorized to Taxes:Foreign or similar will get everything right for tax summary reports and tax schedule reports. I don't use the Tax Planner module so I can't comment on that interaction. The problem I would have with the Withdrawal transaction is that it is less likely to get properly attributed to the applicable security.

My QW2017 keeps the transaction as a MiscExp. NotACPA's screenshot suggests this is a change for QW2019 (or 18?).

Thanks for the detailed response. I looked at the OFX file and did some research on its format. I agree that the problem is probably with Charles Schwab. I sent a message to my broker at Schwab to see if this is something he could follow up on. Maybe talk with the team that works on generating OFX files for Quicken. It's a long shot... we'll see. Fortunately, the foreign tax transactions aren't too frequent (a couple a month). I can always delete the Withdraw transactions and manually re-enter as a MiscExp.

NotACPA

The OP (Joseph Arden) is on the right track and has the concept right. Foreign-owned companies trading on US exchanges (usually as ADRs) that pay US dividends often withhold an additional amount of the dividend (10 to 15%) and pay that as a tax in their home country. So the US investor or shareholder might receive a cash dividend of $100 but also pay $15 simultaneously as a foreign tax. His net from the two is $85. (IMO) That $15 is best accounted for in Quicken as a MiscExp transaction.

Mutual funds typically bypass that detail at dividend payment time effectively only reporting the net $85 dividend. They make up for it on the 1099 year end data when the increased dividend is reported along with the foreign tax payment.

msHiggin is also correct that it is the financial institution reporting this as a Withdrawal rather than as a MiscExp. That is where the complaint needs to be registered. Brokerages I have worked with have regularly reported those as MiscExp, as best I can recall.

Handling this as a MiscExp categorized to Taxes:Foreign or similar will get everything right for tax summary reports and tax schedule reports. I don't use the Tax Planner module so I can't comment on that interaction. The problem I would have with the Withdrawal transaction is that it is less likely to get properly attributed to the applicable security.

My QW2017 keeps the transaction as a MiscExp. NotACPA's screenshot suggests this is a change for QW2019 (or 18?).

BUT, when I tried to manually input this (in my IRA) as a MiscExp, it was a WITHDRAW that got recorded in the investment Log. That would be a Q error, not a Schwab error.

Joseph Arden

The OP (Joseph Arden) is on the right track and has the concept right. Foreign-owned companies trading on US exchanges (usually as ADRs) that pay US dividends often withhold an additional amount of the dividend (10 to 15%) and pay that as a tax in their home country. So the US investor or shareholder might receive a cash dividend of $100 but also pay $15 simultaneously as a foreign tax. His net from the two is $85. (IMO) That $15 is best accounted for in Quicken as a MiscExp transaction.

Mutual funds typically bypass that detail at dividend payment time effectively only reporting the net $85 dividend. They make up for it on the 1099 year end data when the increased dividend is reported along with the foreign tax payment.

msHiggin is also correct that it is the financial institution reporting this as a Withdrawal rather than as a MiscExp. That is where the complaint needs to be registered. Brokerages I have worked with have regularly reported those as MiscExp, as best I can recall.

Handling this as a MiscExp categorized to Taxes:Foreign or similar will get everything right for tax summary reports and tax schedule reports. I don't use the Tax Planner module so I can't comment on that interaction. The problem I would have with the Withdrawal transaction is that it is less likely to get properly attributed to the applicable security.

My QW2017 keeps the transaction as a MiscExp. NotACPA's screenshot suggests this is a change for QW2019 (or 18?).

That I am not sure about. On my investment account I have the ability to select either MiscExp or Withdraw (among many others). If I select MiscExp, it records as MiscExp. If I select Withdraw, it records as Withdraw. I DO have a problem if I try to change an Withdraw to a MiscExp by editing the Withdraw (using right-click -> Edit); it still displays as a Withdraw in the ledger. I created a separate issue for this bug. Your bug sounds similar, but different. You might consider creating a separate issue for you bug??

q_lurker

The OP (Joseph Arden) is on the right track and has the concept right. Foreign-owned companies trading on US exchanges (usually as ADRs) that pay US dividends often withhold an additional amount of the dividend (10 to 15%) and pay that as a tax in their home country. So the US investor or shareholder might receive a cash dividend of $100 but also pay $15 simultaneously as a foreign tax. His net from the two is $85. (IMO) That $15 is best accounted for in Quicken as a MiscExp transaction.

Mutual funds typically bypass that detail at dividend payment time effectively only reporting the net $85 dividend. They make up for it on the 1099 year end data when the increased dividend is reported along with the foreign tax payment.

msHiggin is also correct that it is the financial institution reporting this as a Withdrawal rather than as a MiscExp. That is where the complaint needs to be registered. Brokerages I have worked with have regularly reported those as MiscExp, as best I can recall.

Handling this as a MiscExp categorized to Taxes:Foreign or similar will get everything right for tax summary reports and tax schedule reports. I don't use the Tax Planner module so I can't comment on that interaction. The problem I would have with the Withdrawal transaction is that it is less likely to get properly attributed to the applicable security.

My QW2017 keeps the transaction as a MiscExp. NotACPA's screenshot suggests this is a change for QW2019 (or 18?).

@NotACPA: I wondered about that IRA aspect. I tried a MiscExp in QW2017 into an IRA account. I first did not expect to see the MiscExp option for an IRA transaction; Quicken has had some quirks about money coming out of an IRA. The option is not available with the Action field pulldown, but it is available through the Enter Transactions button. I entered a MiscExp transaction and the transaction stayed as a MiscExp. That test is what led me to suggest something changed since QW2017.