The average tax rate for 2020 in the Tax Planner is double that of my actual 2020 tax return?

jhug516

I'm reconciling the estimated 2020 tax liability in the Tax planner (which I used for estimated tax purposes) to the actual tax liability in my 2020 income tax return. With the exception of the taxable portion of SSI (which I will estimate myself next year) everything else included in taxable income matched up very well and , certainly good enough for estimated tax purposes. The problem I experienced is that the calculated tax in Quicken is essentially double that of my actual tax liability. Has anyone else experienced this problem?

markus1957

So if you reported qualified dividends on your tax return and did not include them in tax planner, that would cause a difference in projected tax liability. For an AGI near the 0% rate threshold for QDI, that would be substantial.

Entering the correct amount of taxable social security income is also a source of the difference as you previously mentioned. Using an automatically entered Income Reminder with a category split for the taxable and non-taxable portions of the monthly social security payments is helpful for getting that section of the planner to report accurately.

In my case, the planner was pretty accurate and has been over the last few years.

NotACPA

Have you compared the Tax Planner, line by line, with your actual return ... to see where the discrepancy begins?

Because the "calculated tax" can't differ unless something before it differed.

And, are you talking about Total Tax, or Tax Owed?

jhug516

The line items in the tax planner agree within reason with those on my tax return, i.e., taxable income is materially correct for estimating purposes. It is the total tax reported on the planner (which you can't drill into to see the actual calculation) that is double that on my tax return. And, the filing status selected agrees with that selected on my return.

markus1957

Long-term capital gains and Qualified Dividends would be the obvious places to look at in Tax Planner.  Did you manually input a qualified dividend value in the Interest/Dividends section of the planner? If not, those dividends were taxed at the regular income tax rates rather than the 0% and 15% rates for QDI & LTCG.

jhug516

Good question. Thanks for the suggestions, but I did not enter any Qualified Dividends in the planner. And, Capital Gains look good, as I had a loss carry forward resulting in the maximum net loss of $3k.

markus1957

So if you reported qualified dividends on your tax return and did not include them in tax planner, that would cause a difference in projected tax liability. For an AGI near the 0% rate threshold for QDI, that would be substantial.

Entering the correct amount of taxable social security income is also a source of the difference as you previously mentioned. Using an automatically entered Income Reminder with a category split for the taxable and non-taxable portions of the monthly social security payments is helpful for getting that section of the planner to report accurately.

In my case, the planner was pretty accurate and has been over the last few years.

jhug516

markus1957 I was just about to follow up with you before I saw your last reply, as I recall having issues in the past with qualified dividends. I did in fact have qualified dividends on my return. When I entered that amount into the planner, the planner essentially reconciled back to my return! Now I have to see how/if I can create (or if one exists) a category to capture Qualified Dividends in Quicken and reclassify them. I think I can easily identify these based on the 1099Rs that I received from my brokers. Thank you so much for helping me get to the root of this difference!

Yes, I'm aware of the issue related to SSI and have taken already taken steps to mitigate

Thanks again.

markus1957

FWIW, here is how I handle it but there are other ways.  Keep in mind, the QDI input value in the planner applies the applicable tax rate to that value and subtracts that value from the regular dividend input value with the remainder being taxed at the regular income rate.

I most cases the dividends are downloaded and end up in that regular dividend input box.  I find for now using a manually entered value in QDI is the simplest means of estimating the correct tax liability.  I use income reminders to project dividends for the year.  So I just estimate how much of those projected dividends are QDI and enter that amount as a user entered value.

You will find if you start trying to use category splits for each dividend transaction that tax projections will look good but that cash flow projections will not. Re-categorizing the download as a QDI will not report to the planner correctly; it will show up in QDI but not in the regular dividend box, thus throwing off the way the planner calculates the tax liability.

adding- adding QDI to the planner is a more recent addition, but it is time that Quicken take a look at the process to make it more automated.  For most individual stocks, a check box like used for tax free bonds would work.  Funds, REIT type stocks and stocks that report K-1 income or return of capital make the process more complicated because they frequently download as regular dividends but are a mixture.

jhug516

I will enter an annual estimate and update over the course of the year. Except for one REIT, whose dividends are split between Section 199A and Qualified, the rest of my holdings currently are either 100% qualified or 100% taxed as ordinary income.

Agree, Quicken needs to step up. Seems they started to by creating the _QualDivInc category, but hasn't followed through with its automated use including a mechanism for reclassifications based on year-end 1099DIVs.