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VTSAX & VTIAX Dividends

Posted: Sat Jan 04, 2020 9:15 pm
by catchinup
My taxable account contains shares of VTSAX and VTIAX. In 2019 they threw off a total of $15,713.43 in dividends and interest payouts. Is that going to be taxable as ordinary income? Thanks

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sat Jan 04, 2020 9:27 pm
by powermega
The interest portion and some of the dividends would be taxed as ordinary income. Most of the dividends should be "qualified dividends" and taxed at 15%.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sat Jan 04, 2020 9:30 pm
by Geologist
It helps to give the names of the fund because most people haven't memorized the tickers. In any case, mutual funds don't pay interest, only dividends. Most of the dividends for Total Stock (VTSAX) will be qualified and taxed at the lower rate for qualified dividends. This is probably also true for Total International (VTIAX) but I don't own that and don't know offhand.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sat Jan 04, 2020 9:30 pm
by Northern Flicker
The majority will be qualified dividends which will be taxed more favorably than regular income by federal income tax schedules. Many states will tax it as ordinary income, but I’m only familiar with income tax in states in which I’ve lived.

In 2018 VTSAX had 94.01% of its dividend income qualified (advantaged tax treatment) and 5.99% was unqualified (taxed as regular income).

In 2018 VTIAX had 74.58% of its dividend qualified.

The data for 2019 has yet to be published, but should be similar. If a fund has at least 95% of its dividends qualified, it can classify 100% as qualified. In some years, VTSAX has had 100% qualified dividends due to this rule.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 9:31 am
by House Blend
catchinup wrote: Sat Jan 04, 2020 9:15 pm My taxable account contains shares of VTSAX and VTIAX. In 2019 they threw off a total of $15,713.43 in dividends and interest payouts. Is that going to be taxable as ordinary income?
Going beyond the question of ordinary vs. qualified dividends, you should understand that you will be reporting and paying taxes on significantly more dividends than the $15,713.43 you received in 2019.

That's because VTIAX withholds foreign taxes from the distributions you received. You will owe US tax on this money even though you never received it. However, you will likely be able to claim this money as a tax credit, and avoid what would otherwise be double taxation.

For VTIAX, a typical average for foreign taxes withheld is 7% of the dividend received. IOW, if you received $5000.00 in dividends from VTIAX in 2019, your 1099 will show ~ $5,350, you will pay US (and state) taxes on that $5,350, and at the same time, you will likely be able to claim a tax credit of ~$350.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 10:44 am
by UpperNwGuy
House Blend wrote: Sun Jan 05, 2020 9:31 am
catchinup wrote: Sat Jan 04, 2020 9:15 pm My taxable account contains shares of VTSAX and VTIAX. In 2019 they threw off a total of $15,713.43 in dividends and interest payouts. Is that going to be taxable as ordinary income?
Going beyond the question of ordinary vs. qualified dividends, you should understand that you will be reporting and paying taxes on significantly more dividends than the $15,713.43 you received in 2019.

That's because VTIAX withholds foreign taxes from the distributions you received. You will owe US tax on this money even though you never received it. However, you will likely be able to claim this money as a tax credit, and avoid what would otherwise be double taxation.

For VTIAX, a typical average for foreign taxes withheld is 7% of the dividend received. IOW, if you received $5000.00 in dividends from VTIAX in 2019, your 1099 will show ~ $5,350, you will pay US (and state) taxes on that $5,350, and at the same time, you will likely be able to claim a tax credit of ~$350.
Good explanation!

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 10:46 am
by dbr
It isn't a bad idea to do your tax return by hand at least once and follow exactly what happens to all the different items of income.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 11:27 am
by livesoft
Listen folks, all those dividends are ORDINARY INCOME! There is ordinary qualified dividend income and ordinary non-qualified dividend income. You may also label them qualified ordinary dividend income and non-qualified ordinary dividend income. You may also label them qualified dividend income and non-qualified dividend income. Those terms all mean the same thing.

See for example IRS Publication 550: https://www.irs.gov/pub/irs-pdf/p550.pdf
IRS Publication 550 p.19 wrote:Ordinary Dividends
Ordinary dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive.
Note that Box 1a of the 1099-DIV includes all the dividend income which is the sum of the qualified and non-qualified dividends. That is "ordinary" applies to both non-qualified dividends and qualified dividends.

Some bond funds pay ordinary interest income which is ordinary income. To get away from ordinary income one might see exempt-interest income or tax-exempt dividends. There are other kinds of investment income that are not ordinary income. To test your knowledge: Are capital gains ordinary income?

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 11:47 am
by mpnret
livesoft wrote: Sun Jan 05, 2020 11:27 am To test your knowledge: Are capital gains ordinary income?
Short term or long term?

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 11:53 am
by anon_investor
OP is likely asking about the taxability of the distributions.

The OP has to provide his/her marginal fed/state income tax rates and state of residence to get more applicable responses.

For example, if the OP is in the 0% to 12% Fed marginal income tax bracket then most if not all of those dividends would likely not be subject to Fed income tax, it would differ by state.

If in the top Fed income tax bracket, the Fed income tax would include a 3.8% NII tax and the tax on qualified dividends would be 20%.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 12:03 pm
by puc_ytpme
Livesoft or others,

Correct me if I am wrong?

Short term Cap gain would be considered ordinary income & taxed @ one’s marginal tax rate.

Long term Cap gain is not considered ordinary income & thus taxed differently

All the best

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 12:05 pm
by livesoft
^That works for me, but what does Publication 550 from the IRS tell you? The reason I ask is the way capital losses are applied.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 12:08 pm
by dbr
puc_ytpme wrote: Sun Jan 05, 2020 12:03 pm Livesoft or others,

Correct me if I am wrong?

Short term Cap gain would be considered ordinary income & taxed @ one’s marginal tax rate.

Long term Cap gain is not considered ordinary income & thus taxed differently

All the best
Sort of. Short term capital gains distributions from mutual funds are added into ordinary income. Actual short term capital gain realized from sale of assets is put into Schedule D and related worksheets and is subject to offsets due to realized capital losses and capital loss carryovers. A short term capital loss enters the same computations. In the end it would be hard to say at what rate a realized short term gain is taxed. Taxes are an exercise in detail and not in generalization.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 12:35 pm
by puc_ytpme
Livesoft,

This is what I got, again, please point out errors

Pg. 49: “In some situations, part of your gain or loss may be a capital gain or loss, and part may be an or- dinary gain or loss.”

So it depends on the situation the detail(not black & white) as DBR pointed out?

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 12:42 pm
by puc_ytpme
DBR,

What I got.

Wise not to have funds that throw off short term capital gains in a taxable account

I can tax gain harvest or loss harvest short term sales depending on the need at that given moment?

All the best

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Sun Jan 05, 2020 1:48 pm
by Razasharpz
Drop Vtiax for VTMGX.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Mon Jan 06, 2020 1:20 am
by catchinup
Geologist wrote: Sat Jan 04, 2020 9:30 pm It helps to give the names of the fund because most people haven't memorized the tickers. In any case, mutual funds don't pay interest, only dividends. Most of the dividends for Total Stock (VTSAX) will be qualified and taxed at the lower rate for qualified dividends. This is probably also true for Total International (VTIAX) but I don't own that and don't know offhand.
Sorry you are correct. I should not have said "dividends and interest." Just dividends for both funds.

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Mon Jan 06, 2020 1:54 am
by Goal33
House Blend wrote: Sun Jan 05, 2020 9:31 am
catchinup wrote: Sat Jan 04, 2020 9:15 pm My taxable account contains shares of VTSAX and VTIAX. In 2019 they threw off a total of $15,713.43 in dividends and interest payouts. Is that going to be taxable as ordinary income?
Going beyond the question of ordinary vs. qualified dividends, you should understand that you will be reporting and paying taxes on significantly more dividends than the $15,713.43 you received in 2019.

That's because VTIAX withholds foreign taxes from the distributions you received. You will owe US tax on this money even though you never received it. However, you will likely be able to claim this money as a tax credit, and avoid what would otherwise be double taxation.

For VTIAX, a typical average for foreign taxes withheld is 7% of the dividend received. IOW, if you received $5000.00 in dividends from VTIAX in 2019, your 1099 will show ~ $5,350, you will pay US (and state) taxes on that $5,350, and at the same time, you will likely be able to claim a tax credit of ~$350.
Thanks for explaining this!

Re: VTSAX & VTIAX Dividends and Interest payouts

Posted: Tue Jan 07, 2020 12:26 am
by catchinup
livesoft wrote: Sun Jan 05, 2020 11:27 am Listen folks, all those dividends are ORDINARY INCOME! There is ordinary qualified dividend income and ordinary non-qualified dividend income. You may also label them qualified ordinary dividend income and non-qualified ordinary dividend income. You may also label them qualified dividend income and non-qualified dividend income. Those terms all mean the same thing.

See for example IRS Publication 550: https://www.irs.gov/pub/irs-pdf/p550.pdf
IRS Publication 550 p.19 wrote:Ordinary Dividends
Ordinary dividends are the most common type of distribution from a corporation or a mutual fund. They are paid out of earnings and profits and are ordinary income to you. This means they are not capital gains. You can assume that any dividend you receive on common or preferred stock is an ordinary dividend unless the paying corporation or mutual fund tells you otherwise. Ordinary dividends will be shown in box 1a of the Form 1099-DIV you receive.
Note that Box 1a of the 1099-DIV includes all the dividend income which is the sum of the qualified and non-qualified dividends. That is "ordinary" applies to both non-qualified dividends and qualified dividends.

Some bond funds pay ordinary interest income which is ordinary income. To get away from ordinary income one might see exempt-interest income or tax-exempt dividends. There are other kinds of investment income that are not ordinary income. To test your knowledge: Are capital gains ordinary income?
Trying to figure out where this will report on Form 1040 to estimate my 2019 personal taxes. Am I going to have $15,713.43 i in line 3b? In other words do 100% of these dividends add directly into total income? Or might some report under 3a and part under 3b but I don't know until I receive the 1099 from Vanguard. That is what I'm trying to figure out. Thanks

Re: VTSAX & VTIAX Dividends

Posted: Tue Jan 07, 2020 5:55 am
by livesoft
catchinup wrote: Tue Jan 07, 2020 12:26 amTrying to figure out where this will report on Form 1040 to estimate my 2019 personal taxes. Am I going to have $15,713.43 i in line 3b? In other words do 100% of these dividends add directly into total income? Or might some report under 3a and part under 3b but I don't know until I receive the 1099 from Vanguard. That is what I'm trying to figure out. Thanks
Line 3b will have more than $15,713.43 because the $15,713.43 has to have the foreign taxes paid by VTIAX added back into the dividends. I'll make a guess that the foreign taxes that you need to add back in will be between $300 and $600, but you can guess better because you know how much dividends you got from VTIAX and you know the historical foreign tax rate on those dividends.

Yes, 100% of these dividends add directly into total income as does the foreign tax paid which you don't know about yet.

Some of the line 3b will also be reported on Line 3a.

This might help you about how your $15,713.43++ will be taxed:
https://www.irs.gov/forms-pubs/error-in ... in-pub-505

https://www.thebalance.com/dividends-on ... ns-3193086