Ordinary and Qualified dividend help

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Ordinary and Qualified dividend help

Postby Zoey » Tue Feb 03, 2009 9:31 am

I have Total Stock Market and FTSE in my Vanguard taxable account for over a year. No additional deposits were made and nothing was sold in 2008 and the dividends were deposited in my Prime MM acct. The Vanguard 1099-DIV under Total Stock has the same dollar amount under total ordinary dividends (Box 1a) as the qualified dividends (Box 1 b).

On the 1040 form, I list ordinary dividends on line 9a and qualified dividends on line 9b. Why are these two amounts the same? It seems to me that I am getting taxed twice on the dividends I receive in the TSM account. I know they aren’t taxed at the same amount, but they do seem like they are taxed twice. What am I not getting? Does TSM and FTSE have BOTH qualified and ordinary dividends?

Thanks,
Zoey
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Postby dbr » Tue Feb 03, 2009 9:37 am

The 1099 is simply stating that all your dividends are qualified.
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Postby Roverdog » Tue Feb 03, 2009 9:47 am

Don't worry. The tax form (or software) essentially is asking, "Of the total amount of dividends, how much of that is qualified?" You're not taxed twice.

Bob
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Postby livesoft » Tue Feb 03, 2009 9:52 am

Why do you think you are being taxed twice? Just because you put numbers on your tax form does not mean you are being taxed on those numbers? Look at your AGI at the bottom of Form 1040. Where did it come from? What numbers got added into it? For example, is there a line where you put your tax exempt interest? Would you be taxed on your tax exempt interest if you had some? Pull out your pocket calculator and do some math otherwise maybe a mistake might have been made.
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Postby Zoey » Tue Feb 03, 2009 10:49 am

OK...I get it.

When I filled out the Qualified Dividends and Capital Gain Tax Worksheet-Line 44, the qualifed dividends that I have on line 9b actually reduced my taxable income and thus my taxes were less...right?

Another question:

On line 13, if I had a capital loss would I just put a minus figure on that line and than subtract it from the total of lines 7-21.

I know that was probably a really stupid question, but this will be the first time I have had to fill out these things. In the past, it was always a no brainer 1040EZ. Searching doesn't necessarily answer obvious questions. Thanks for bearing with me.
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Postby kaneohe » Tue Feb 03, 2009 11:08 am

Zoey wrote:OK...I get it.

When I filled out the Qualified Dividends and Capital Gain Tax Worksheet-Line 44, the qualifed dividends that I have on line 9b actually reduced my taxable income and thus my taxes were less...right?

Another question:

On line 13, if I had a capital loss would I just put a minus figure on that line and than subtract it from the total of lines 7-21.

I know that was probably a really stupid question, but this will be the first time I have had to fill out these things. In the past, it was always a no brainer 1040EZ. Searching doesn't necessarily answer obvious questions. Thanks for bearing with me.


Q1.....close but not quite.....your taxable income (line 43 if using 1040) stays the same but on the worksheet, for the purposes of computing tax, some subtotal got reduced when you subtracted out the qualified dividends/capital gains. Edit to add:
the qualified dividends/capital gains got taxed at some lower rate (perhaps even 0% under certain conditions).

Q2....if you have a capital loss you need to enter it on Sch D first, along with any other capital gains/losses to see if your loss may be limited to 3K. Then you would carry the appropriate result from Sch D to line 13 of the 1040 and
follow the instructions for line 22..... "add" all the numbers together........just make sure you remember your algebra when adding +/- numbers together.

Doing taxes by hand is a great way to understand what you are doing. Sounds like progress.
Last edited by kaneohe on Tue Feb 03, 2009 11:45 am, edited 1 time in total.
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Postby Roverdog » Tue Feb 03, 2009 11:13 am

I agree with kaneohe, but will add that you can also plug the numbers into Taxact (free from their website) or Turbotax (the online version is free until you want to print or file) -- so this is another method that will enable you to play with the numbers and see how things change.

Good luck,

Bob
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Postby Zoey » Tue Feb 03, 2009 11:30 am

Thanks everyone!! I really appreciate your help and have a better understanding. Maybe I will try the free software and see if it agrees with my outcome. Zoey
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Postby retiredjg » Tue Feb 03, 2009 12:04 pm

This is a good example of why it is a good idea to do your taxes with a pencil and paper every once in awhile.

Don't get me wrong. I LOVE TurboTax. But when things are done in the background for you, instead of your doing it with pencil and paper, it is not always as clear how things work.
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Postby Zoey » Mon Mar 02, 2009 12:50 pm

I am back doing my income tax by hand after putting it aside for awhile and I want to run this by you to make sure I understand correctly.

Form 1099-DIV

Box 1a-Total Oridinary Div

Prime MM
2,000.00

TSM
5,000.00

FTSE
2,000.00



Box1b Qualified div

Prime MM
0.00

TSM
5,000.00

FTSE
800.00


The IRS site says:Ordinary dividends are taxable as ordinary income unless they are Qualified dividends.

So line 9a on the 1040 would have 3,200.00 as Oridinary Div.
Line 9b would have 5,800.00 as Qualified Div.

Am I correct?
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Postby kaneohe » Tue Mar 03, 2009 1:36 am

Close but not quite.....I think you are the victim of overthinking and the IRS's poor choice of descriptive terms....I think "ordinary dividends" should be called "total" which would lead you to understand , as a previous responder noted, that it would include qualified dividends, and thus would have to be as large or larger than the qualified dividends.

In your example line 9a (ordinary dividends) should be 9000 which is really the "total" and line 9b (qualified dividends) should be 5800 as you noted. The instructions w/ your 1099DIV form should have told you where to put what.

Good for you for pursuing the pencil and paper though.....when you're done you'll understand much better than many.

edit: you are correct in thinking that the portion of dividends taxed at ordinary rates is 3200 . This occurs when you do the actual calculation.
Unfortunately the IRS nomenclature does not reflect your or my common sense.
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Postby Zoey » Tue Mar 03, 2009 8:54 am

kaneohe, thank you for taking the time for explaining this to me again. You were right that it does explain it on the back of the 1099-Div...don't know why I didn't think to read that. I was searching on line for the answer and got confused with what I found at irs.com. It seems so simple now. On to the next challenge!! Ugh! I just may have to bite the bullet and hire this done to make sure it is right....too much I am not sure of.
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Instruction book?

Postby earlyout » Tue Mar 03, 2009 9:46 am

Zoey,

If you don't have a copy of the instruction booklet for your Form 1040 I strongly encourage you to get one. This booklet will make it much easier to understand how to complete the 1040. The booklet goes through the Form 1040 line by line with instructions, schedules and / or worksheets for generating the necessary numbers. Just as you need Schedule D for arriving at your capital gain/loss you need Schedule B to list your ordinary and qualified dividends.

The booklet is available online at the IRS website or you can pick up a copy at your local IRS office. You may also want to pick up a copy of IRS Publication 17 which has a lot more explanatory information about individual income taxes.

EO
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Postby dbr » Tue Mar 03, 2009 10:41 am

In addition to the last, specifically going through the Qualified Dividends and Capital Gain Tax Worksheet will allow you to see how the 1099 entries are actually used to calculate your tax. Without doing that it is very opaque as to what things like lines 9a and 9b actually mean.
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Postby retiredjg » Tue Mar 03, 2009 10:42 am

Zoey, I would not hire it done just yet. This year turbotax sent an extra disc out with my TT purchase. It's for a friend to try their service (although to print and email, I'm sure you'd have to pay). Maybe you have a friend who could give you one? Or I could send you mine?

Also, many companies (including Vanguard) have TT online for free or cheap. Come to think of it, I think you could go online at TT and use theirs - just don't print or mail, or you'd have to pay. At least, that's the way it used to work.

You've already conquered one of the more confusing parts of the tax form. Continue on, then check it with a free copy of software. You'll be glad you did this.
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Postby Zoey » Tue Mar 03, 2009 2:40 pm

Thanks you guys for the encouragement. This morning I redid form 1040 by hand using the correct amounts in 9a and 9b. I like this outcome so much better!

Earlyout, surpisingly I do have the Instructions, but insist on making everything more difficult!

dbr, you are right. When I did the Qualified Dividends and Capital Gain Tax Worksheet by hand it really did help me understand the how and why. Doing my taxes has been a real learning experience and I have actually enjoyed the challenge...sometimes!

retiredjg, it makes me nervous to use the free software on line so I will ask around for the extra TT disc. It will be good experience to use the tax software and to double check my figures. Thanks for thinking that I could do this!
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Postby retiredjg » Tue Mar 03, 2009 3:03 pm

Zoey wrote:retiredjg, it makes me nervous to use the free software on line so I will ask around for the extra TT disc. It will be good experience to use the tax software and to double check my figures. Thanks for thinking that I could do this!

Of course you can do it! And if you want my extra disc, just pm me with your address. I understand about not wanting to do it online. I've done it once (TT would not work with my old operating system) and it was fine, but I'm more comfortable not doing it that way.

Hint for next year: make a list of things to remember for next year so you don't have to reinvent the wheel each time. I've done this for years and it is always a help.
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