Taxable Dividend for a Tax Free Muni Bond Fund

Bruce Wills

Using QforW Home, Business & Rental, Ver R32.12.

My Nuveen Muni Bond Fund Re-characterized certain of it's Tax Exempt Dividend Income in 2020 to make it part Tax Exempt and part Taxable (Ordinary Div) as reported on my 1099-Div from my broker. This security is held in a Taxable Brokerage Account. My Security table has the Muni Bond Fund checked as a tax free security, so even if the Dividend row has an entry (for the taxable part of the dividend) in the Income (Income Int, Div, etc.) dialog box for data entry, Quicken converts that to the _DivIncTaxFree category when it stores the transaction. All of the reports (Tax and Investment Income) report the taxable dividend from this Tax-Free Security as Tax Free vs. part Taxable and part Tax Free.

In reviewing the community posts, I've seen much discussion about this category regarding Taxable vs. Non-taxable (ie. IRA) ACCOUNTS, but that's not my issues here. And, I've seen nothing about a Tax-Free marked SECURITY paying a taxable dividend and how to get Quicken to accept that dividend correctly for later reporting. I've also seen suggestions to create a duplicate security with one marked as Tax-Free and one Not, but that would mess up my broker downloaded transactions, so I haven't tried that. I haven't tried marking the SECURITY as Taxable (Tax-Free box not checked), but suspect I won't be able to process the usual Tax-Free Income Dividends to the _DivIncTaxFree category, which would create my problem in reverse hypothetically. I may try that next regardless, but still looking for a better solution. Any suggestions from the Quicken Community?

Jim_Harman

Were these dividends reinvested or received in cash? Hopefully cash because that is simpler.

Was the taxable part a small percentage of the total? If so it may not be worth it the trouble to separate it out.

Rocket J Squirrel

You can enter the taxable dividend as Miscellaneous Income transaction with a taxable income category. If you don't have one already, you can create a category named, say, "Taxable Dividend" and assign it to Schedule B:Dividend Income. Then your tax reports will include that taxable amount.

Bruce Wills

For both Jim & Rocket (love your user name BTW). For Jim-Divs were received in cash, originally classified on my monthly brokerage statement as all tax exempt income and downloaded that way from my brokerage, but then reclassified on my annual 1099-Div. And yes, a tiny percentage less than 1/10% for the taxable amount, which one would expect from a tax free mutual fund. For Rocket-Interestingly when I was trying to correct for the 1099-Div in my Q register, I tried entering the tax free amount in the Dividend Row of the Income dialog box and the taxable amount in the Misc row along with a category of _DivInc. Quicken did the strangest thing when I saved the transaction. It created two entries in the register, one for the Dividend row, which was the tax exempt amount (and internally got converted to _DivIncTaxFree for reporting purposes), and the second transaction for the Misc row, which was the taxable amount (and also internally got converted to _DivIncTaxFree for reporting purposes). I'll give Rocket's suggestion a try, should correct the Tax Reports, but wonder about the "canned" Investment Income report. Will report back. Easy test.

Thanks guys.

Bruce Wills

Ok guys, Created a new category that I pointed to the Sch B: Div Tax Reporting line. Entered the transaction with the tax exempt amount in the Dividend Row of the entry dialog and the taxable amount in the Misc Row of the entry dialog and pointing to the new category I created. Still did the strange thing by creating two transactions once I saved the transaction, but low and behold, it works perfectly on both the tax reports and the investment income report. That is a totally workable solution IMO. Thank you!

One followup if you don't mind though. When I created the new category I used an "_" preceding the name of the category I created. Is there any implication of having done that vs. just creating a named category without the leadin "_"? A final thanks.

Rocket J Squirrel

Not so strange. This is normal and expected behavior. There are no split transactions in investment registers. So for each line item you enter in an Income or Reinvestment transaction dialog, you get a separate transaction as a result.

You can use the leading underscore without ill (or any) effect, but the intention is that these are meant to indicate Quicken's built-in investment categories. You may find it easier to keep track of your new category by losing the underscore; then it won't get confused with a built-in category years from now.

Bruce Wills

Perfect, got it. I went back and looked at some historical transactions where I would have entered two rows of differing income amounts into a single transaction dialog and sure enough it created two entries vs. creating the equivalent of a split. I never noticed that before. And I agree, might change my self-created div category to drop the "_" just so there is no future confusion. Good recommendation.

Thanks much, got me moving in the right direction again, I was stuck.