How to report HSA gains in CA return? (H&R block software)

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masterofinvesting
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How to report HSA gains in CA return? (H&R block software)

Postby masterofinvesting » Sat Mar 18, 2017 9:44 pm

Hi,

I've been using H&R Block software to do my tax returns for the past few years, but this year is throwing an unexpected curveball. I live in CA and have a HSA account in which I have some dividends and capital gains that I need to report on my CA return. The thing is, H&R block software neither asks for this in the interview, nor allows me to edit the Schedule CA and Schedule D forms directly to enter this information.

I am wondering how others in similar situation are managing this? Should I just switch over to using Turbotax instead if it has better support for this, or am I limited to paper filing due to this special situation?

Also, H&R Block support was clueless about this ... after I described my problem in detail, the chat response was ... "go to the take me to in your software and click there and in the search bar type dividend income and you will find the form you need" :annoyed

Thanks!

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Re: How to report HSA gains in CA return? (H&R block software)

Postby MossySF » Sat Mar 18, 2017 10:24 pm

For dividends and interest, it's easy. Make a fake 1099DIV entry that is tax-free for federal but taxable for CA. It would basically be the equivalent of dividends/interest from a nationwide muni bond fund.

For capital gains, TaxAct allowed me to update line 13 of the CA Adjustment form to make the adjustment. My personal opinion though -- if the tax software can't do it -- skip it. The tax instructions for line 13 are completely silent about HSA capital gains. By comparison, the instructions for line 8 do explicitly mention HSA interest. I purposely filed for HSA gains in 2014 because I already planned to file for capital losses in 2015 the next year so I wanted to be consistent in my filing.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby tfb » Sat Mar 18, 2017 11:03 pm

MossySF wrote:For dividends and interest, it's easy. Make a fake 1099DIV entry that is tax-free for federal but taxable for CA. It would basically be the equivalent of dividends/interest from a nationwide muni bond fund.

For capital gains, TaxAct allowed me to update line 13 of the CA Adjustment form to make the adjustment. My personal opinion though -- if the tax software can't do it -- skip it. The tax instructions for line 13 are completely silent about HSA capital gains. By comparison, the instructions for line 8 do explicitly mention HSA interest.

California does not give special treatment to realized capital gains whether long-term or short-term. So just treat interest, dividends and realized capital gains all the same. There is a place to enter California income adjustment. I chose 'other'.
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Re: How to report HSA gains in CA return? (H&R block software)

Postby grabiner » Sun Mar 19, 2017 8:36 am

MossySF wrote:For capital gains, TaxAct allowed me to update line 13 of the CA Adjustment form to make the adjustment. My personal opinion though -- if the tax software can't do it -- skip it. The tax instructions for line 13 are completely silent about HSA capital gains. By comparison, the instructions for line 8 do explicitly mention HSA interest. I purposely filed for HSA gains in 2014 because I already planned to file for capital losses in 2015 the next year so I wanted to be consistent in my filing.


The instructions which come with the tax forms are not legally binding; your legal obligation to pay tax is determined by what the tax laws and regulations say. If CA taxes an income item, and you sign a return not reporting it, you have violated the tax laws.

Therefore, if the tax software does not support something, it is your responsibility to fix manually. Most tax software allows you to override a calculation; this allows you to work around bugs, as well as dealing with tax law aspects that it cannot handle. I have had to do this several times, with HSAs in NJ and with two bugs in 2010 which affected only a small number of NJ part-year residents.

(edited to clarify)
Last edited by grabiner on Sun Mar 19, 2017 10:06 am, edited 1 time in total.
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Re: How to report HSA gains in CA return? (H&R block software)

Postby kaneohe » Sun Mar 19, 2017 9:02 am


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Re: How to report HSA gains in CA return? (H&R block software)

Postby kaneohe » Sun Mar 19, 2017 9:13 am

MossySF wrote:................................... The tax instructions for line 13 are completely silent about HSA capital gains. ...............


not exactly........see pg 8/9 https://www.ftb.ca.gov/forms/2013/13_1001.pdf which deals w/ CG

"Other Gains or Losses
• Basis differences of business
property
The California basis of assets may be different than the federal
basis due to differences between California and federal law,
which may affect the gain or loss on disposition.
Get Schedule D-1, Sales of Business Property, to
figure the adjustment to make on Schedule CA
(540 or 540NR)."

The term "business property" is a bit misleading and it's likely that this section was not specifically written w/ HSAs in mind
but the general idea .......differences between Fed/CA basis treatment........seems applicable.

Even the instructions for Sch CA have similar wording ......wrt line 13 of the 1040 :
". However, the California basis of the assets listed below
may be different from the federal basis due to differences between California
and federal laws. If there are differences, use Schedule D (540), California
Capital Gain or Loss Adjustment, to calculate the amount to enter on line 13"

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Re: How to report HSA gains in CA return? (H&R block software)

Postby masterofinvesting » Sun Mar 19, 2017 10:43 am

tfb wrote:California does not give special treatment to realized capital gains whether long-term or short-term. So just treat interest, dividends and realized capital gains all the same. There is a place to enter California income adjustment. I chose 'other'.


Thanks, tfb. This looks like a good option. As long as I pay what I owe and have sufficient documentation for the calculations, I hope it won't be a problem.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby masterofinvesting » Sun Mar 19, 2017 10:44 am

kaneohe wrote:https://ttlc.intuit.com/questions/2757069-how-do-i-report-hsa-stock-transactions-and-dividends-for-california

Here is a suggested TT workaround. Don't know if HRB can do the same.


Unfortunately, this seems to be a problem with HRB. The corresponding forms are read-only. There is an "override" option, but it is mentioned that using that option means paper-filing the return which I wish to avoid.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby Artsdoctor » Sun Mar 19, 2017 10:55 am

tfb wrote:
MossySF wrote:For dividends and interest, it's easy. Make a fake 1099DIV entry that is tax-free for federal but taxable for CA. It would basically be the equivalent of dividends/interest from a nationwide muni bond fund.

For capital gains, TaxAct allowed me to update line 13 of the CA Adjustment form to make the adjustment. My personal opinion though -- if the tax software can't do it -- skip it. The tax instructions for line 13 are completely silent about HSA capital gains. By comparison, the instructions for line 8 do explicitly mention HSA interest.

California does not give special treatment to realized capital gains whether long-term or short-term. So just treat interest, dividends and realized capital gains all the same. There is a place to enter California income adjustment. I chose 'other'.


There are two things here that are not correct.

As Grabiner states, you're required by law to declare your income and gains from your HSA. California does not recognize any tax-advantaged portion of an HSA. If you don't declare it, you are in violation of the California tax code.

Second, you don't treat dividends and capitals gains the same way at all. You declare the dividends as income, and you'll do it on your California Form 540, column C (additional income). Your capital gains will go on California Schedule D (540). California allows you to carryover losses from one year to the next so you can definitely offset your gains with current or previous losses. Over time, if you're an avid tax-loss harvester, you'll find that your running tally of carryover losses become very different when comparing federal and state tallies.

You can also use this to your advantage: you can tax-loss harvest in your HSA as well. Additionally, if you're investing in treasuries (both nominals and TIPS), your income will not be declared on your state income tax form.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby grabiner » Sun Mar 19, 2017 11:30 am

Artsdoctor wrote:You can also use this to your advantage: you can tax-loss harvest in your HSA as well. Additionally, if you're investing in treasuries (both nominals and TIPS), your income will not be declared on your state income tax form.


While holding Treasuries or TIPS if your state taxes HSAs is a good idea, CA and AL do tax capital gains on Treasuries, so you might still have something to report. NJ does not tax capital gains on Treasuries, nor on "qualified investment funds" which hold at least 80% securities exempt from NJ tax, such as most Treasury and TIPS funds.
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Re: How to report HSA gains in CA return? (H&R block software)

Postby tfb » Sun Mar 19, 2017 1:06 pm

Artsdoctor wrote:
tfb wrote:
MossySF wrote:For dividends and interest, it's easy. Make a fake 1099DIV entry that is tax-free for federal but taxable for CA. It would basically be the equivalent of dividends/interest from a nationwide muni bond fund.

For capital gains, TaxAct allowed me to update line 13 of the CA Adjustment form to make the adjustment. My personal opinion though -- if the tax software can't do it -- skip it. The tax instructions for line 13 are completely silent about HSA capital gains. By comparison, the instructions for line 8 do explicitly mention HSA interest.

California does not give special treatment to realized capital gains whether long-term or short-term. So just treat interest, dividends and realized capital gains all the same. There is a place to enter California income adjustment. I chose 'other'.


There are two things here that are not correct.

As Grabiner states, you're required by law to declare your income and gains from your HSA. California does not recognize any tax-advantaged portion of an HSA. If you don't declare it, you are in violation of the California tax code.

Second, you don't treat dividends and capitals gains the same way at all. You declare the dividends as income, and you'll do it on your California Form 540, column C (additional income). Your capital gains will go on California Schedule D (540). California allows you to carryover losses from one year to the next so you can definitely offset your gains with current or previous losses. Over time, if you're an avid tax-loss harvester, you'll find that your running tally of carryover losses become very different when comparing federal and state tallies.

You can also use this to your advantage: you can tax-loss harvest in your HSA as well. Additionally, if you're investing in treasuries (both nominals and TIPS), your income will not be declared on your state income tax form.

I added realized gains as income to Schedule CA line 21 as income addition. It's already declared. There is no special lower tax rate for capital gains in CA. I don't have a capital loss.

This is done in HRB software. Under State -> Income -> Income Adjustments (Residents), find a screen 'Income Items', I checked the last box 'Other income (uncommon)'. On the next screen I checked the last box 'Other adjustments (uncommon)'. Then I put the HSA interest, dividends and realized capital gains in 'Other adjustment addition'.

There may be better ways to take advantage of a capital loss. I don't worry about it. I don't suppose the state will have a problem with me when I declare realized capital gains as income.
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Re: How to report HSA gains in CA return? (H&R block software)

Postby Artsdoctor » Sun Mar 19, 2017 2:42 pm

^ That's fine if you have no capital losses, although you will presumably have capital losses at some time in the future (the market will go down--eventually). When that happens, you'd be leaving money on the table if you don't offset your capital gains against the losses (federal and/or state).

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Re: How to report HSA gains in CA return? (H&R block software)

Postby masterofinvesting » Sun Mar 19, 2017 3:08 pm

tfb wrote:I added realized gains as income to Schedule CA line 21 as income addition. It's already declared. There is no special lower tax rate for capital gains in CA. I don't have a capital loss.

I am in the same situation. I have no capital loss this year. But, I can see how things become complicated if you do have capital loss and hence a potential Wash sale. I am wondering what steps I can take to keep this reporting as simple as possible (so as to avoid maintaining a full blown Schedule-D each year separately for CA). Any ideas?

A few things that come to mind:
  • Minimize purchases as much as possible (i.e., don't purchase every paycheck) - this keeps the number of lots small, and hence reduces accounting overhead, and the possibility of a wash sale. Unfortunately, our service provider doesn't allow disabling dividend reinvestments - so there are limits to this strategy.
  • Sell and repurchase stock at a gain as and when possible to minimize the number of lots to track. You may be realizing gains early, but if you are only using HSAs for TIPS/treasuries, these may be quite insignificant.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby jrtexas » Sun Mar 19, 2017 3:10 pm

HSA's are tax free? Correct?

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Re: How to report HSA gains in CA return? (H&R block software)

Postby Artsdoctor » Sun Mar 19, 2017 3:16 pm

masterofinvesting wrote:
tfb wrote:I added realized gains as income to Schedule CA line 21 as income addition. It's already declared. There is no special lower tax rate for capital gains in CA. I don't have a capital loss.

I am in the same situation. I have no capital loss this year. But, I can see how things become complicated if you do have capital loss and hence a potential Wash sale. I am wondering what steps I can take to keep this reporting as simple as possible (so as to avoid maintaining a full blown Schedule-D each year separately for CA). Any ideas?

A few things that come to mind:
  • Minimize purchases as much as possible (i.e., don't purchase every paycheck) - this keeps the number of lots small, and hence reduces accounting overhead, and the possibility of a wash sale. Unfortunately, our service provider doesn't allow disabling dividend reinvestments - so there are limits to this strategy.
  • Sell and repurchase stock at a gain as and when possible to minimize the number of lots to track. You may be realizing gains early, but if you are only using HSAs for TIPS/treasuries, these may be quite insignificant.


If you wanted to be truly safe and avoid any possibility of a wash sale, you'd hold funds in your HSA which you do not hold elsewhere. You'd be unencumbered to trade.

At first glance, the CA tax return can be daunting. But once you learn how to work with it, and you can use Turbo Tax (for example) to do so, it's really not a big deal to have your state Schedule D tally running with carryover losses not matching your federal return. Once you realize you have to do it and learn how to enter the data, the whole thing is really a matter of minutes.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby Artsdoctor » Sun Mar 19, 2017 3:17 pm

jrtexas wrote:HSA's are tax free? Correct?


Yes, in 47 states. CA, AL, and NJ don't recognize HSAs as being tax-advantaged.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby j__h » Sun Mar 19, 2017 11:29 pm

Actually getting to the mechanics of this on H&R Block software. I am able to get to the Schedule D form and expand to whole form (which it seems to indicate that you then can enter info). I then can type into the form but whenever I click to another box the earlier one's text/numbers disappears.
Has anyone been successful in adding capital gains information into the schedule D using H&R block?


On Schedule D form in H&R Block software
> Click whole form to make your entries.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby j__h » Tue Mar 21, 2017 4:05 am

Spent some more time on this and I believe I have the manual aspect of it (corrections appreciated). You can in fact edit the California Sched D and Sched CA forms in H&R block. You need to go to forms tab (not try to edit the worksheet in the interview) and then right click on the box to enter and use the "override" option. Then You can fill in the forms and the return amount changes in the expected fashion. This will make it so you will not be able to file electronically for California through H&R block though.


For the Sched CA I put interest into line 8C and income (dividends) in 9C(Both from my HSA provider's year end summary).

For the CA Sched D I just entered a new row with the realized capital gains from one sale I made from a fund in the HSA.

One extra bit of fun I found was that I could import Sched D transaction from Federal (not including HSA as Federal does not have these) from the interview but then had to edit the cost basis for my ESPP transaction as the carried over cost basis was not the right one (they did not carry over the corrected cost basis that accounted for the discount being included in the W2 but the one on the 1099B which did not account for the discount in W2).

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Re: How to report HSA gains in CA return? (H&R block software)

Postby hoops777 » Thu Mar 23, 2017 9:31 am

This is great.So I had no idea Ca.HSA's.So my wife has had hers only in the HSA savings for the last 8 years without reporting it.She has earned almost nothing,a few hundred dollars or so.So what to do?
K.I.S.S........so easy to say so difficult to do.

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Re: How to report HSA gains in CA return? (H&R block software)

Postby grabiner » Thu Mar 23, 2017 9:05 pm

hoops777 wrote:This is great.So I had no idea Ca.HSA's.So my wife has had hers only in the HSA savings for the last 8 years without reporting it.She has earned almost nothing,a few hundred dollars or so.So what to do?


File amended CA tax returns (form 540X) for those years which are still open.
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