Why are tax exempt securities not included as tax free in reports

Patrick Day

When setting up the profile for three securities, because they are in my IRA, I checked the box tax exempt. However, unlike all the other securities in my IRA, these do not show tax free dividends. All three are ETF's. Anybody have a similar problem?

Patrick Day

Sorry, thought I was posting to the Mac discussions. I have Quicken Deluxe for Mac

[Deleted User]

@Patrick Day - No worries!  I will request that this post be moved to a Quicken Mac category.

NotACPA

@Patrick Day  May I ask why you're holding a tax free security in your IRA?

By virtue of being in the IRA any security is tax free for as long as the funds are in the IRA, and you're accepting a lower return on those tax-free securities in exchange for their tax benefits in a taxable account.

When you take those funds, and any interest from them, our of your IRA, they'll ALL be taxable at that time .... no matter what the tax status of the securities themselves.  Double-check this with your broker.

Patrick Day

I understand the tax free status until I take an IRA distribution. My problem is that while in the IRA, securities are profiled as tax exempt and, when that is checked, dividends are then reported as tax free. However, despite having checked the tax exempt box for these particular three securities, they are classified as regular dividends and not tax free. Dividends from all other securities in my IRA's are classified as tax free. This is a reporting discrepancy.

jacobs

@Patrick Day Where are you seeing the dividends showing up as regular (taxable) income?

Anything earned in an IRA account is tax-free, and Quicken's Tax Schedule report reflects this by omitting dividends, income and capital gains in retirement accounts.

The designation of a tax-free security exists for securities held in taxable accounts. If you have a tax-exempt bond fund, for instance, in a taxable brokerage account, dividends from that find do not show up in the Tax Schedule report.

Are you running something a Category report for your retirement accounts, and seeing dividends in your tax-free reports reported as Investments:Dividend Income? That shouldn't be a problem, because you did receive dividends in those accounts; whether the security is tax-free or not is irrelevant. The Tax Schedule report knows which of those dividends to include in the Schedule B section.

Typically, as @NotACPA suggests above, you wouldn't hold securities like a tax-free bond fund in an IRA account, because such investments trade lower returns for their tax-free dividends; you'd typically hold such securities in a taxable account. But if you do hold an actual tax-free security in a retirement account, then Quicken should handle it okay.

If you've checked the tax-free box on a security simply because you hold it in a retirement account, you shouldn't do that; uncheck the tax-free box because the security itself isn't tax-free, the account is. Only check the tax-free box if the security itself is tax-free.

If that doesn't address your question, please post back with more details so we can continue to explore and get to the bottom of the issue.

Patrick Day

I understand what you are saying. I do not hold tax exempt securities in my IRA's. However, I check the tax exempt box for all securities in my IRA's so that I can run a report which shows dividends from my IRA vs. dividends from my taxable account. I do not use the Tax Schedule. I realize this is not conventional. What still puzzles me is why I have checked the box on these three securities, but they do not show up in my tax free portion of the report, but only in the regular dividend section.

jacobs

@Patrick Day Got it. I don't know the thinking of the programmers, but I think the point would be that these securities in your IRA account are not tax-free dividends, these are dividends in a tax-free account. The end result is the same for tax purposes, but by definition those are two different things.

As I said, I would uncheck the tax-free box on any securities unless they are actually tax-free by nature (like a tax-free bond fund). Here's why: it's possible at some point you might hold shares for the same security in both a taxable and a retirement account. (For example, I hold some shares of the Vanguard Total Stock Fund in both my IRA account and my taxable brokerage account.) If you have that tax-free box for the security checked, then the dividends in your taxable account will come out incorrectly.

If you want to see a your dividend income separately for your taxable and retirement accounts, you could run a category report and sort it by Account, but that will only separate them and not give you subtotals for each. So I'd just create two income reports, one for your taxable accounts and one for your retirement accounts, if your goal is to be able to see those dividends separately. Or perhaps more useful, you could create a cross-tab report with each account in its own column: go to Reports and click New, select Summary report with Rows=Category and Columns=Account; select your time range and in the Accounts tab, select only your investment accounts. If you have a lot of accounts, this may not be what you want, so you might still need separate report for your taxable brokerage accounts and one for your retirement accounts.

Patrick Day

Thanks. I download Quicken reports into Excel, so I was hoping to clear up this small discrepancy. Not a problem, though, as I will continue to pull the dividends from the three accounts and place them in the proper category. Appreciate your time and explanations.