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How do I deduct a foreign tax withholding from a gross cash dividend check?

soumoulou

With my Windows Classic Deluxe, I have opened on offline bank account. In that account, I would like to record my foreign, cash stock dividends (all Qualified) with with a Tax Line Item Assignment "Schedule B: Qualified dividend". Thus, I created a "Personal Deposit" category named "Dividends" with two subcategories named "Ordinary" & "Qualified". The "Qualified" category is further subcategorized as "Foreign" & "USA".

Then, I received a $4,000 "net" cash dividend check from a foreign company (a Canadian company, named "TDB") but TDB withheld $1000 in Non-Resident Tax Withholdings. So…

So, I recorded the $5,000 gross amount of the check, categorizing it as "Dividends:Qualified:Foreign" and assigned it the Tax Line Item Assignment of "Schedule B: Qualified dividend". At this point, my Quicken Tax report will accurately reflect the amount of the gross qualified dividends received from TDB (and this is important). But…

But, of course, I now have to show the $1,000 that was deducted from the check—it's important to know at a glance my true bank balance. Also, as you know, the IRS will allow me a Foreign Tax Credit filed on Form 1116 (which will reduce my "Qualified Dividend" Tax burden).

I realize that Quicken does not have a Tax Line Item Assignment for this Foreign Tax Credit. But I don't mind giving my CPA the amount of the credit at the end of the year. Certainly, I'd like to have fairly accurate Quicken Reports so that I can budget appropriately during the year. As for my Quicken Tax Reports, I'd at least like for them to reflect accurately my foreign, gross tax cash dividends. However, I'd much prefer to keep just one, simple, Quicken Bank Account (I am new to Quicken).

My idea: Categorize the $5,000 gross check (with the "Schedule B:Qual Div" Assignment) as, "Dividends:Qualified:Foreign" and then deduct the $1,000 as an "after tax deduction" (at year's end, I can simply add up these foreign tax credit "deductions" and give them to my CPA; in the meantime, my register will accurately reflect the "net amount" of these foreign gross dividend checks. Can I use the "Paycheck Wizard" in this capacity? (With "Paycheck Wizard" it so easy to deduct items from my gross paycheck!). How about some type of "split" deposit? But I'm not sure how to do this (especially if all falls under "Personal Income").

Another idea: record the $5,000 gross check as a "Personal Deposit". Then, record (at the same time), a "Personal Expense" of $1,000 (making the Payee 'Foreign Tax Credit") and using the category "Dividend:Qualified:Foreign".

Thank in advance for any suggestions!

Carl

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Jim_Harman

You are on the right track, but you don't need to use the Paycheck Wizard, just create a Category Split for the deposit.

Click on the down arrow at the right of the Category box for the deposit transaction and click on the Split button.

On the first line, enter the $5,000 gross amount with your Dividends:Qualified:Foreign Category. On the second line, enter the $1,000 deduction as a negative number with a Category for the withholding and the tax line of W2:Federal tax withheld, Self. This will make the net deposit match what was actually deposited. Quicken does not track anything related to foreign taxes in its Tax reports, but having your own Category for them will help for year end reporting.

soumoulou

Sir,

In my Quicken Account I went to the register, entered the date the Dividend check was deposited, and then entered my name as "Payee" (the Dividend check is made payable to me). Then, I clicked on the down arrow at the right of the Category box for the deposit transaction and clicked on the Split button. On the first line I entered the $5000 gross amount with my "Dividends:Qualified:Foreign" Category (and made sure that the "Schedule B:Qualified Dividends" Tax Assignment was showing. And, when I check under the Category List, this is under the general "Personal Income" Category. So far so good…

Then, on the next line I entered $1000 as a negative amount (and it, appropriately, shows up in red). Then, I moved my cursor to the left and created a brand new category named "For Tax Withholding" and assigned the "W2:Federal Tax withheld, Self" tax line. Therefore, the net amount of $4,000.00 shows up at the bottom of the screen as the total. That's great but the newly created "Foreign Tax Withholding" Category always seems to wind up under the general "Personal Expense" Category—I can't seem to force this negative entry under the general "Personal Income" Category. I suppose that it's logical that a negative entry would always fall under the "Personal Expense" Category, but you'll see below why I tried to do this…

Here's the issue: when I create a Summary Banking Report, the $5000 gross deposit is listed within the Income column (so the Total Income amount includes the $5,000). On the other hand, the $1,000 Withholding is listed within the Expense Column— (with the "Foreign Tax Withholding" Category). Naturally, the Total Expenses at the bottom includes the $1,000. Therefore, the Income minus Expenses grand total is accurate… which is fine. But!

But, I was hoping that when I ran the report, the Income column would show the $5000 entry and, then, a red debit of $1,000 would show up right below it so that the $4,000 would be listed in the Income column (with the explanatory math reflecting what happened). The $5,000 Deposit/$1,000 Red Debit would be close together so as to easily see what happened (as opposed to being mislead by the false Total Income problem when I'm in a rush—;i.e, I have to look down the Expenses column to find that $,1000 Debit).

I can live with that. But let me know if there's another way to go about this.

Thanks!!!

Jim_Harman

The gross deposit is income and the tax withheld is an expense, not income, which is why they are listed in the corresponding sections of the Banking Summary report.

It sounds like you would like to see a report that shows your income net of amounts that were withheld and showing the gross and withholding amounts. One way to do that would be to run a Banking Transaction report. Click on the gear at the top right to customize the report. On the Display tab select Show splits, and on the Payees tab, select just the Payees that generate income.

[update] I would not recommend it because it might have unwanted side effects, but if you really want the withholding to be grouped with your Income Categories, you can go to Tools > Category list and edit the withholding Category to put it in the Personal Income group. If you do that, Quicken should treat it as negative income rather than an expense.

markus1957

I think you can do what you want if you add 2 sub-categories under the custom income category you created. One called Dividend and one called foreign tax (or whatever names suit you). Use a split transaction to record the gross dividend and then the negative income under foreign tax. Since both are income categories and subs, they will report together.

You seem to know this is not how it should be done in Quicken but is a method chosen for your convenience.

soumoulou

Thank you both!

Finally:

markus1957 said: "You seem to know this is not how it should be done in Quicken but is a method chosen for your convenience." True!

Mr. Harman said: "On the first line, enter the $5,000 gross amount with your Dividends:Qualified:Foreign Category. On the second line, enter the $1,000 deduction as a negative number with a Category for the withholding and the tax line of W2:Federal tax withheld, Self. This will make the net deposit match what was actually deposited. Quicken does not track anything related to foreign taxes in its Tax reports, but having your own Category for them will help for year end reporting." Question: Is this what most people (well-versed in the use of Quicken Classic Deluxe) do? Thanks again…

Jim_Harman

Is this what most people (well-versed in the use of Quicken Classic Deluxe) do?

For foreign dividends, my brokerage downloads just the net amount after the any withholding and does not distinguish between Qualified and Regular dividends. I just enter the downloaded amount using the standard _DivInc Category.

In the Tax Planner I enter an estimate for my total Qualified dividends, based on the amount from the previous year. I also enter an estimated amount for the Foreign Tax Credit, also based on the amount for the prior year.

I use the Tax Planner to estimate whether I will owe taxes or get a refund in April, keeping in mind that it is only an estimate.

At tax time, I compare the brokers' 1099 forms to the Quicken data and make sure there are no discrepancies.

soumoulou

Very helpful.

Thanks again!