non-taxable distributions

[Ellen S]

Hi all,

How do folks enter non-taxable distributions in investment accounts?

I just realized my past downloaded inputs from a tax-exempt fund where I assigned these to "misc cash deposit" (using icreateOFX) left the Investment Transaction activity field blank.  But this prevents tracking tax-exempt interest (important for IRMAA), so, I manually recharacterized these as "other income."  This causes a new field to pop up above the total where you can assign a category (as in banking accounts).  I was able to enter tax-exempt interest in this pop-up field. 

This works well enough, but I wondered how others handle this and to see if there is another or better way to enter these data?

[schw...@q.com]

Are the distributions reported in box 3 on a 1099-DIV?  If so, they are actually return of capital and reduce your basis in the investment.  Once your basis has been reduced to 0, they are treated as unqualified dividends.

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[Cal Learner]

You want to have the money entered into the investment transactions register rather than just the associated cash register. So that probably  means Other Income, or Dividend, or Reinvest Dividend.

Return of capital is non-taxable, and decreases the basis. It does not affect MAGI. But reducing basis would not be appropriate for this I think.

I think the income you are talking about is somewhat non-federally taxable income, commonly called tax exempt interest, from muni/agency bonds. 

As you know,  MAGI is calculated as Adjusted Gross Income (line 11 of IRS Form 1040) plus tax-exempt interest income (line 2a of IRS Form 1040).    I don't think the MAGI thing existed when Microsoft Money was defined. I have never tried to predict MAGI, because it would be hard to predict. You would have to add several things, including capital gains and "tax exempt interest". Plus, I don't think you know the thresholds that will be used to look at your 2024 MAGI because that threshold would be expected to be changed before the 2024 numbers get used for IRMAA in 2026. I commend you for making the try.

I think you might want to be able to pick out some Interest transactions from others. One way would be to put something like MAGI into the transaction memo. How about a report? Customize an Investment Transactions report to look for entries that also have MAGI in the Memo. That is what the Text field is when you customize a report.  Unfortunately  that report does not generate a total, but you could copy the report and paste into a spreadsheet, where you run the total. 

[Ellen S]

this is a new account/new investment--Vanguard Sht Term Tx Exempt Fund.  I haven't received a 1099 yet, but being an ETF, I just assumed it was like tax exempt interest, which allows Money to report out.  Can an ETF have basis and return capital?   I just saw that Money has an entry for that.  (yes, I am referring to the investment register).  I think I'm showing my investment ignorance.

I've been assembling data on a spreadsheet while waiting for CPA guidance--I am in between CPA's right now, also needing guidance on RMDs.   and other complications (K-1).  So, yes, I do get how difficult this is, esp with IRMAA tier time lags etc.   I make rough guesses, use online tax estimators.   I tried to use TurboTax last year and screwed up badly b/c of the K-1 (TT's live advisors--out of state--did not engender confidence).   As for finding a CPA, I keep getting referrals who don't want new clients, are too specialized or preparing to retire.   If I do find one, it may be too late to get input this year.

These end of yr decisions are nerve wracking.   and the CPA hunt goes on.     

thx

[Cal Learner]

Would that be VTES? What I suspect is that the 1099 will show dividends paid. I suspect the 1099 will not identify they are tax-exempt in any way. I expect the whole amount of the distribution will be shown as a non-qualified dividend. Then come January, you will seek out a Vanguard document that tells you what percent of the distributions of that fund were federal tax exempt. You or your tax person will calculate using that percent. You will put the amount into a particular place into Turbotax, or your tax person will handle that. 

ETFs have a basis. I don't know how common return of capital for ETFs might be.

I tried to find a tax info document for VTES for 2023 taxes, but I did not.

[Cal Learner]

CORRECTION: I now expect the muni interest will be tracked and  added into box 12 of the 1099-DIV. What I was describing above is what happens when you have treasury interest that is not taxable by states. Muni interest appears to be much easier.

I came to this conclusion by looking at my 1099.

[Ellen S]

I erred, the investment is a mutual fund, VWSUX, and I did own it previously in another account.  and Cal, you are correct, I finally found it on the past 1099 which shows the income under 1099-DIV (which I note is titled Dividends and Distributions) line 12 as "exempt interest dividends."    In the monthly statement it is listed as a muni bond fund.

Getting back to Money, it looks like categorizing distributions as "other income" --- "tax exempt interest" should work, at least for planning purposes.   and I still don't see a better alternative.   agree? 

[Cal Learner]

I just did an experiment, and yes, that seems to work. I don't think I had ever noticed that Other in the Investment Transactions register produced a category selection. As to whether Other is best, I am not so sure. If it works for you, then good. I did wonder if you could make the category a split, and that seems to be a no. 

An alternative, to me, is to set up VWSUX as tax exempt, make a customized report form Investment Transactions that only shows the Dividend or Reinvest Dividend, but only show the investments that are classed as tax exempt. That report does not keep a running total, so you would need to paste into the spreadsheet to totalize. That report does  have a tab for "Investment" to only include certain investments in the report.

Maybe  BETTER, maybe not: make a report that is customized from the Account Transactions report to look for MAGI in the Memo. That one has the advantage of a running total. As to whether to classify VWXUX as exempt, that would be a matter of choice. The actual distribution is probably a mix, but majority exempt.

Vanguard still works very nicely with PocketSense. I use that for one mutual fund held at Vanguard. I presume it also works for stocks/ETFs held at Vanguard. PocketSense also downloads for my sweep/core holding for Vanguard, but that is $0. Admiral shares can only be held at Vanguard. I expect you are using PocketSense at Vanguard already, and looking at the OFX file, that gets downloaded into the XFR folder, to help with what the CSV should translate into.  If Vanguard were to make a long term commitment to continue the OFX server, that would be a big deal.

[Ameridan (microsoftmoneyoffline.wordpress.com)]

Cal & Ellen,  you are both on the right track.  You'll see that I've been following the "Other..." method for some time in some of my articles,  like https://microsoftmoneyoffline.wordpress.com/2019/04/01/u-s-treasury-bill-transactions/ & https://microsoftmoneyoffline.wordpress.com/2021/01/16/u-s-series-i-savings-bonds/ .  You can create your own subcategories, as well, and match them up to the respective tax forms.

[Ellen S]

Thanks, Ameridan, lots to digest on your blog; and Cal, I like the idea of adding MAGI to my tax reporting.  I was already thinking about creating a new subcategory and linking it to the tax line.  Currently, limited time and many distractions keep me from doing a proper upgrade to my Money tax report, but I may get to it yet.

Cal:  good to know Vanguard still enables OFX downloads, but the VWSUX is not held there.   It will be interesting to see which stops OFX first, Fidelity or Vanguard.  Let's hope neither.

Thanks everyone.

[Tom Meyer]

Cal,

I've set debug=1 on F2O2A.  The log recorded 2 MUNIs that have not been imported.  I set the Other Income input to "Investment Income : Tax-Exempt Interest".  Not a big issue, but maybe an enhancement could be addessed at some pont.

Tom (Texas)

[Cal Learner]

Thanks.

If the Action (column D) starts with "INTEREST" or "MUNI EXEMPT INT" or  "MUNI TAXABLE INT", F2O will (starting with the next posted version) generate an INTEREST transaction in the  Investment Transactions register. If you have already put a transaction into the Cash Transactions register, when you get the new transaction, you should Delete or Void the other transaction so that you don't double-count.

As to whether the interest is considered taxable by Money, you will tick "Status: Tax exempt" or not.

I suggest you also make a custom report that lists interest from investments that will be fully or partially state-tax exempt for your state.

So why have F2O use this way vs putting in a cash transaction? It lets Money track the performance to the security. It is the way Money envisioned it.  It was also easier to implement.

I did not have a Treasury note or bond interest entry in an Accounts_History CSV to check. I would like to know what Column D starts with for that. Fidelity allows you to generate an Accounts_History CSV for up to 5 years back, if somebody would care to check.

[Ameridan (microsoftmoneyoffline.wordpress.com)]

You can take this even further using "Other Income"

[Tom Meyer]

Thanks, I'll look for your next update and give it a try.  BTW, I tried the F2O_Selenium module.  It worked but the 2-facture at Fidelity made it more difficult than just doing the 2 downloads manually.  I'm still interested in automating my daily data feed.

T

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[Ameridan (microsoftmoneyoffline.wordpress.com)]

Fidelity made changes again yesterday afternoon, that Jon had to figure out and modify script for.  You are correct Tom - it may not be worth all of the effort implementing the Selenium module.    Jon is looking into other alternatives...
Logging into Fidelity and downloading the 2 csv files only takes 6 clicks ;)   Then I run my F2O Menu script, then my Pocketsense get ofx script. 

[Cal Learner]

Tom: I uploaded F2OTH1.py that you can use instead of F2O.py to check this one addition.

If you could confirm there are not unexpected effects with your CSV files. The resulting OFX should be the same as before except for two new transactions that act as I described.

I expect this to be part of the regular F2O.py. We will see if somebody can come up with what the Treasury note/bond interest entries look like. If it just starts as INTEREST there will be no change needed for that one. T-bills (1 year and shorter) do not pay interest transactions separately.

[djevel]

Since it doesn't sound like 2FA triggers when you log in manually, you can also tell Fidelity to remember your browser/device during the 2FA process when first logging in using F2O_Selenium. That way it won't ask you for that info in the future.

-djevel