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dividends taxable and tax free

pamela77

Good morning, I am using quicken 7.10.1 on a Mac using Sonoma. I am trying to understand the different "dividend" categories. There is dividend income under investments, dividend income tax free under investments and dividend income under personal income. I'd like the category to be more useful. Right now sometimes quicken puts it under personal and other times under investments. It would be more useful under investments. It never puts it under tax free even in a Roth or an IRA, so my taxable income at the end of the year is too high and they are all grouped together. How can I train quicken to put the taxable dividends all in investments and to use the tax free category as well? Thank you

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NotACPA

In general, and this isn't Mac specific, the account type has MUCH to do with the taxability of dividends.

I own, in both my taxable brokerage account and in an IRA, stock from my former bank employer. The dividends paid into the taxable account are fully taxable and are reported to me on a 1099 and included on my IRS Form 1040.

The dividends paid on the same stock, but held in my IRA aren't taxable, because the income in the account isn't taxable. It's only when money is taken out of the IRA that such money becomes taxable but it doesn't matter if those funds came from dividends, interest gains on the sale of stock or what.

I record, in QWin, the divs paid on that stock as simply DIV and I let the tax status of the account deal with the differences.

"Tax Free dividends" outside of a retirement type account are pretty rare …and you'd need to talk to a tax expert re: how to handle them.

pamela77

Thank you, I do understand that dividends within an IRA don't generate taxes until money is withdrawn from the IRA. Shouldn't Q be able to know it should enter those dividends under "dividends tax free"?

NotACPA

If the tax attribute of the IRA account is set properly, then "dividend tax free" is unnecessary. And, actually a bit puzzling because I'm unsure as to why a corporate stock dividend would be "tax free" … unless it was actually a "return of capital".

Boatnmaniac

(EDIT: When I posted the following I did not realize this is in a QMac thread. The pictures and steps shown below are specific to QWin but the concepts should be applicable to QMac even though the specific steps and views will be different. I apologize for any confusion this might have caused.)

"Tax Free dividends" outside of a retirement type account are pretty rare …and you'd need to talk to a tax expert re: how to handle them.

Actually, the are quite a few tax-free state, local and municipal bond mutual funds that pay out tax-free dividends (the funds themselves actually are paid interest by the bond issuer but since they are held investments by the mutual fund it means the mutual fund pays out dividends). If these or other tax-free securities are included in a taxable investment account, then the Edit Security Details popup should be reviewed to make sure the box for Tax Free is checked as is highlighted in the following picture:

…dividends within an IRA don't generate taxes until money is withdrawn from the IRA. Shouldn't Q be able to know it should enter those dividends under "dividends tax free"?

Quicken is smart enough to know when dividends are tax free in the case of tax free securities and tax free accounts (like Roth accounts) or tax deferred in the case of tax deferred accounts (like IRA and 401(k) accounts) provided the securities and the tax deferred accounts are set up correctly.

For Tax Free Securities: See the Edit Security Details picture shown above. Note - If the security is not classified as Tax Free, do not check this box even though it might be included in a tax free or tax deferred account.

For Tax Free Roth Accounts: Go to the Account Details popup…

Make sure the correct Account Type is selected from the drop-down. Note - There currently is no Roth 401(k) account type in Quicken. The closest we can come to that at this time is to select "Roth IRA" for it.
Make sure that "Yes" is selected for Tax Deferred. (Even though this is a tax exempt account, select Tax Deferred.)
Click on the Tax Schedule button and ensure that the correct tax schedule is selected for Transfers Out. In the case of a Roth IRA it would be as shown in the picture pasted below.

For Tax Deferred Accounts: Similar setup steps as with Tax Exempt accounts but with a few differences….select the correct Account Type, select Tax Deferred and after clicking on Tax Schedule make sure to select the correct tax schedules for both Transfers In and for Transfers Out. The pictures below are for IRA accounts but the basic instructions apply to other tax deferred accounts, as well.

By ensuring that securities and accounts are set up correctly, Quicken should capture the data correctly in the Tax Reports and in Tax Planner.

Does this answer your question?

NotACPA

@Boatnmaniac AAHHHH, I wasn't thinking about Divs from muni bond funds. My head was in the Corporate world.

Thanks for rectifying.

pamela77

Thank you boatmaniac, On Mac, it does not show those options of checking the tax deferred box or anything. All it shows is the drop down menu for the type of account. It allows you to pick the currency and the tracking method. HOWEVER, I think I see my mistake. I was pulling up a list of transactions by category, so all the dividends are mixed together . I see that when I pull up a TAX report, it only shows the dividends in the taxable accounts. Thank you very much for your help.

Boatnmaniac

https://community.quicken.com/discussion/comment/20468349#Comment_20468349

I'm glad you found the information useful and that you figured out that the Tax Reports will be where you see only the taxable dividends reported. Other reports will include all dividends….taxable, tax free and tax deferred…as they should.

pamela77

thank you all for your comments. On quicken Mac, we do not even have the option to select this drop-down menu and indicate these things. I guess we just have to depend on it being in a taxable or non-taxable account.