Do I report 42 cents of tax-exempt money market income?

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neurosphere
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Do I report 42 cents of tax-exempt money market income?

Post by neurosphere » Sat Feb 04, 2012 10:54 am

For 2011 I received 42 cents in dividend payments from a state-specific municipal money market fund.

I realize that Vanguard wont be sending me a 1099 for this. But yet I am still obligated to report income on my taxes.

1) What is the threshold for this? Since it's less than 50 cents, does it round down to zero and thus not reported?
2) Suppose the income was $1. It it still reportable even though it does not change my taxes owed? I'm assuming yes on that, because it may figure into AMT calculations.
3) If I WANTED to report it (or perhaps learn in advance what I need to do for next year when I'll have perhaps $5 in interest), how would I do that without a 1099. I'm using Tax Act downloadable version.

What to file my taxes soon, and need to make sure I'm not going to have to send a 1040X because of 42 cents of tax-free income. :)

NS
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bru
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Re: Do I report 42 cents of tax-exempt money market income?

Post by bru » Sat Feb 04, 2012 11:03 am

I always use $10 as the cut off. I base this on not receiving a 1099 (either DIV or INT) if the value is less than $10. YMMV

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Re: Do I report 42 cents of tax-exempt money market income?

Post by sscritic » Sat Feb 04, 2012 11:03 am

1) you put the number in. What your tax software does is its business. As I understand it, you can either use pennies or dollars, but you have to be consistent. Also, if you are adding many numbers, add with the pennies first; then round off to the dollar. Do not round before adding.

2) yes. The instructions say put this number on this line; they don't say put this number on this line only if your total tax is changed by so doing.

3) I don't use Tax Act, but my guess is that it asks the question about your tax-exempt income. If may even have a question about missing 1099s. In either case, enter the correct number in the correct place.

I entered the correct interest amounts on my Schedule B even without 1099s; the amounts were 1.19, 0.85, 1.21, and 9.82.

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Re: Do I report 42 cents of tax-exempt money market income?

Post by gkaplan » Sat Feb 04, 2012 11:26 am

I earned 11 cents on my credit union savings account and 38 cents on my Vanguard Admiral Treasury Money Market Fund. In each case when I inputted these figures into the Free File Fillable Forms software package, the program changed the numbers to 0.
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Re: Do I report 42 cents of tax-exempt money market income?

Post by Sidney » Sat Feb 04, 2012 11:49 am

Since you report only whole dollars, rounding down from .42 to 0. Whether one receives a 1099 or not from an institution is irrelevant as to whether the income is reportable.
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Re: Do I report 42 cents of tax-exempt money market income?

Post by sscritic » Sat Feb 04, 2012 12:00 pm

Sidney wrote:Since you report only whole dollars, rounding down from .42 to 0. Whether one receives a 1099 or not from an institution is irrelevant as to whether the income is reportable.
You can round off cents to whole dollars on your return and schedules. If you do round to whole dollars, you must round all amounts. To round, drop amounts under 50 cents and increase amounts from 50 to 99 cents to the next dollar. For example, $1.39 becomes $1 and $2.50 becomes $3.

If you have to add two or more amounts to figure the amount to enter on a line, include cents when adding the amounts and round off only the total.
The IRS meant may, not can, but that doesn't change the fact that you may report pennies if you wish.

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Re: Do I report 42 cents of tax-exempt money market income?

Post by nisiprius » Sat Feb 04, 2012 12:18 pm

Consider calling 1-800-829-1040 and asking. I don't think you have a thing to lose. The time I've had to wait for them to answer the phone, find out what I wanted, transfer the call to someone else, and wait for the second person to answer, hasn't been bad--up to decent customer-service standards. I bet it will take less than ten minutes.

My recollection is that you don't even need to give them your name unless you need to have them look up your records.

People get exercised about the fact that the IRS is not actually bound by what their representatives tell you, but, so what? At the very least it's one more well-informed opinion.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Do I report 42 cents of tax-exempt money market income?

Post by neurosphere » Sat Feb 04, 2012 1:26 pm

Here my thoughts/actions after reading the replies.

First, I entered the data AS IF I had received a 1099 with this tax exempt income. TaxAct accepted the data, with the cents ($0.42) on the form.
But this information did not propagate to the 1040 to box 8b (tax exempt interest).

I tried to find out how to report this income in taxact in the absence of a 1099, and was not able to do so with the online help and 5-10 minutes of browsing the web and tax support forums.

I am fairly satisfied that by not bothering to further attempt to report the income I am
1) legally paying the taxes I owe
2) Abiding by the spirit of the law
3) Not subjecting myself to unnecessary corrections/paperwork in the future through providing incomplete information, nor creating a problem should I be audited for other reasons.

I acknowledge that I may be violating the LETTER of the law, perhaps. However, this will not cause me any lost minutes of sleep. :)

Next year I will likely have over $1 in tax free income, and I still DO wish to learn how to do this in taxact, and still be able to e-file, which I cannot do if I override calculated values, and which is the only way I think I may have been able to solve this problem on my own.

NS
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Re: Do I report 42 cents of tax-exempt money market income?

Post by Muchtolearn » Sat Feb 04, 2012 1:30 pm

I believe that if you fail to report this 42 cents, you will likely be prosecuted and go to jail. Seriously, spend your time on things that matter.

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Re: Do I report 42 cents of tax-exempt money market income?

Post by sscritic » Sat Feb 04, 2012 2:04 pm

neurosphere wrote: Next year I will likely have over $1 in tax free income, and I still DO wish to learn how to do this in taxact, and still be able to e-file, which I cannot do if I override calculated values, and which is the only way I think I may have been able to solve this problem on my own.
You can enter data without overriding anything.

My tax software has a "comes from" option if you double click on an entry. If I double click on 8b, it takes me to Schedule B line 1 which has an entry for the Tax-Exempt fund showing 0. Double clicking on the 0, I am taken to the Interest Summary with boxes for Gross and Taxable. I can enter data directly in the Interest Summary (although when I try, it asks if I want to go to the 1099 for that line or enter directly).

Try this. Enter a fake 1099 with $2.34 of tax-exempt interest. Go to 8b. Trace back to see where it comes from. If it comes from a similar Interest Summary, you can try to enter a duplicate without using a 1099. Now go back and delete the 1099. What do you have left? Do it again with $0.42 of interest. What happens?

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Re: Do I report 42 cents of tax-exempt money market income?

Post by DavidC » Sat Feb 04, 2012 3:15 pm

TaxAct always rounds values on the final forms: as far as I can tell TaxAct is compliant with the IRS rules sscritic mentioned earlier (I completed my taxes manually without rounding and with TaxAct). I would have to restart and boot into Windows to play around with TaxAct... but hopefully you will not need that :) .

FYI in the past TFB has identified earlier versions of TaxCut (not TaxAct) illegally rounding values... in theory that kind of a mistake if caught by the IRS would be covered by the software manufacturer under their audit guarantees. Their audit guarantees do not release you from your obligation to enter all values including this year's 42 cent tax-exempt income.
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Re: Do I report 42 cents of tax-exempt money market income?

Post by neurosphere » Sat Feb 04, 2012 3:24 pm

Muchtolearn wrote: Seriously, spend your time on things that matter.
Some people do crossword puzzles, which don't matter.
Some people play soduku, that's a thing that does not matter.
Fantasy baseball? Does not matter.
Re-runs of old sitcoms? Don't matter.

For many people on this board, the discussions of taxes/finances/investment theory are highly practical discussions engaged in with the intent to save or make money, and be well educated regarding major life decisions, i.e. finances and money.

For many OTHERS on this board, discussions of taxes/finances/investment theory are a hobby, a diversion, a fun thing to do, a distraction from the 'real' problems people have.

And I'm willing to bet, that there is a substantial overlap in the two groups.

I'm not tearing my hair out worrying about reporting $0.42. 99% of the discussion for me is an enjoyable distraction, much like reading a throwaway paper-back of the day. But yet there is still that 1%, where any discussion on minutiae may actually benefit me or someone else in the future.

In my case, I already spend a lot of time on things that 'don't matter'. And these kinds of discussion are one of them. I'm here sometimes precisely BECAUSE it doesn't matter, for when I'm looking for something to do intentionally that does not matter. For some people that's a crossword puzzle, a doodle on a napkin, looking at advertisements in a magazine. For me, sometimes that's wondering how to account for 42 cents of tax-exempt interest. :D

Cheers,
NS
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Re: Do I report 42 cents of tax-exempt money market income?

Post by neurosphere » Sat Feb 04, 2012 3:36 pm

I created a 1099-DIV and entered 0.42 in box 8 "tax exempt interest".

Below the form entry, is question #17 "amount from box 8 that is both federal and state tax exempt".

If I enter $0.42 in box 8, and as the answer to question #17, it creates an entry on Schedule B with a dollar value of zero, and a zero gets entered on line 8b of the 1040.

If I create an item on box 8 of the fake 1099 in the amount of $50,000.20, and also list $50,000.20 for the answer to question 17, it creates a entry on Schedule B for $50,000. Also, in the bottom of Part I of the schedule B is this: "Less: Tax-Exempt Interest, $50,000. So that the total in part I is netted out to zero: $50,000 for what is reported on the 1099-INT, minus the $50,000 not reported on the 1099-INT but asked for me in tax-act. This zero amount is then sent to line 8b of the 1040.

So if Vanguard had indeed sent me a 1099 for the $0.42, it would not end up appearing anywhere in my filed taxes apart from a zero entry on the Schedule B.

Best,
NS
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Re: Do I report 42 cents of tax-exempt money market income?

Post by sscritic » Sat Feb 04, 2012 3:44 pm

neurosphere wrote:I created a 1099-DIV and entered 0.42 in box 8 "tax exempt interest".

Below the form entry, is question #17 "amount from box 8 that is both federal and state tax exempt".

If I enter $0.42 in box 8, and as the answer to question #17, it creates an entry on Schedule B with a dollar value of zero, and a zero gets entered on line 8b of the 1040.

If I create an item on box 8 of the fake 1099 in the amount of $50,000.20, and also list $50,000.20 for the answer to question 17, it creates a entry on Schedule B for $50,000. Also, in the bottom of Part I of the schedule B is this: "Less: Tax-Exempt Interest, $50,000. So that the total in part I is netted out to zero: $50,000 for what is reported on the 1099-INT, minus the $50,000 not reported on the 1099-INT but asked for me in tax-act. This zero amount is then sent to line 8b of the 1040.

So if Vanguard had indeed sent me a 1099 for the $0.42, it would not end up appearing anywhere in my filed taxes apart from a zero entry on the Schedule B.

Best,
NS
I am about to give up on you. You say this is like Sudoku for you, so keep working on the puzzle. I gave you a suggestion. Can you trace back from the zero on line 8b to a worksheet (not the 1099)? Can you enter directly on the worksheet?

This is your last chance! [I will even forgive you for misspelling Sudoku if you can trace where the number comes from.]
http://en.wikipedia.org/wiki/Sudoku
Sodoku is a bacterial zoonotic disease
http://en.wikipedia.org/wiki/Sodoku

OK, so that's not they way you spelled it, but you did start with "So."

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Re: Do I report 42 cents of tax-exempt money market income?

Post by neurosphere » Sat Feb 04, 2012 3:57 pm

sscritic wrote: I am about to give up on you. You say this is like Sudoku for you, so keep working on the puzzle. I gave you a suggestion. Can you trace back from the zero on line 8b to a worksheet (not the 1099)? Can you enter directly on the worksheet?
Very sorry! I did follow your helpful suggestion! But reported back to you the information 'forwards' not backwards.

Double clicking on Line 8b took me only to Schedule B. Any entry on Schedule B took me to form 1099-INT (or DIV, and a few other forms where info goes on to schedule B).

There was never a worksheet, exactly, but as I mentioned, there were questions 'beneath' each individual 1099 form called "Other Items not reported on Form 1099-INT".

There was not a worksheet or other way I could find to otherwise report or enter the $0.42 other than through a 'fake' 1099.

So please forgive me, despite my Sudoku mistake. :oops:

NS
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Re: Do I report 42 cents of tax-exempt money market income?

Post by sscritic » Sat Feb 04, 2012 4:14 pm

Oops. My bad. Sorry.

It's just that it's hard to figure out how someone else's software works when you don't have a copy. Maybe someone else with a copy can find somewhere where you can sneak in interest without having a 1099.

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Re: Do I report 42 cents of tax-exempt money market income?

Post by neurosphere » Sat Feb 04, 2012 5:21 pm

Doh! I found the info on their website. I guess I did not look hard enough the first time. The second time I found it quickly.
Here is what they write:

--------------
You should receive a 1099-INT from banks and financial institutions for interest earned over $10. Even if you did not receive a 1099-INT, or if you received under $10 interest for the year, you must still report any interest earned and credited to your account during the tax year.

The interest earned is entered in the Investment Income section of the program.

From within your TaxACT return (Online or Desktop) click on the Federal Q&A tab

Click Investment Income to expand the category, then click Interest Income (Form 1099-INT)

Click Add to create a new copy of the form or click Review to review a form already created

Click Quick Entry or Step-by-Step Guidance. If you select Quick Entry, be sure to scroll down to answer all applicable questions.

If you select Step-by-Step Guidance, the program will proceed with the interview questions.

The payer's identification number and address is not needed.
---------------

If you follow their instructions, it creates a 1099 as if it had been received, and then all of the numbers fall into the right place (which is nowhere, in the case of the $0.42). I guess it says that the payer's id number and address is not needed because there is no 'real' 1099 info which need to be stored or corroborated.
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Re: Do I report 42 cents of tax-exempt money market income?

Post by tfb » Sat Feb 04, 2012 6:20 pm

DavidC wrote:FYI in the past TFB has identified earlier versions of TaxCut (not TaxAct) illegally rounding values...
The software changed its name to H&R Block At Home, but it's still doing that technically illegal rounding in the current version for 2011 tax year.
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Re: Do I report 42 cents of tax-exempt money market income?

Post by LazyNihilist » Sat Feb 04, 2012 6:54 pm

DON'T PANIC :lol:
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Re: Do I report 42 cents of tax-exempt money market income?

Post by alanf56 » Sat Feb 04, 2012 7:03 pm

Interesting question indeed. I just talked to one of my banks and they told me they are not sending a 1099 int on one of my closed accounts because it did not earn 10 dollars in interest. He didn't tell me how much it DID earn and said it won't be reported anyhow. So if I didn't report this I guess it would not be noticed??? To be on the safe side should I just report $9 and be done with it? I assume the IRS would not mind if I over reported...

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Re: Do I report 42 cents of tax-exempt money market income?

Post by tomd37 » Sat Feb 04, 2012 7:16 pm

All income is to be reported on your tax return, even if you do not receive a tax document from the issuing company/person. However, you round down the amount (only even dollar amounts are normally reported on a tax return) for 49 cents and below and round up for 50 cents and above and therefore some amounts need not be reported. Just because you did not receive a tax document is not a valid reason for not reporting the income. :dollar
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Re: Do I report 42 cents of tax-exempt money market income?

Post by LadyGeek » Sat Feb 04, 2012 7:18 pm

tomd37 wrote:Just because you did not receive a tax document is not a valid reason for not reporting the income. :dollar
Agreed. All income must be reported.
alanf56 wrote:I assume the IRS would not mind if I over reported...
I think so, as it's a difference which must be reconciled. The issue is whether or not there's a penalty (or interest) involved, and in which direction (you to IRS or vice versa).
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Re: Do I report 42 cents of tax-exempt money market income?

Post by sscritic » Sat Feb 04, 2012 7:35 pm

alanf56 wrote:Interesting question indeed. I just talked to one of my banks and they told me they are not sending a 1099 int on one of my closed accounts because it did not earn 10 dollars in interest. He didn't tell me how much it DID earn and said it won't be reported anyhow. So if I didn't report this I guess it would not be noticed??? To be on the safe side should I just report $9 and be done with it? I assume the IRS would not mind if I over reported...
What type of account was it? If it was a checking account, you should have monthly statements showing the interest earned each month. With less than $10 in interest, I infer it was not a CD, unless you closed it on January 4 (I think the 3rd was a holiday as the 1st fell on a Saturday).

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Re: Do I report 42 cents of tax-exempt money market income?

Post by Muchtolearn » Sat Feb 04, 2012 7:49 pm

neurosphere wrote:
Muchtolearn wrote: Seriously, spend your time on things that matter.
Some people do crossword puzzles, which don't matter.
Some people play soduku, that's a thing that does not matter.
Fantasy baseball? Does not matter.
Re-runs of old sitcoms? Don't matter.

For many people on this board, the discussions of taxes/finances/investment theory are highly practical discussions engaged in with the intent to save or make money, and be well educated regarding major life decisions, i.e. finances and money.

For many OTHERS on this board, discussions of taxes/finances/investment theory are a hobby, a diversion, a fun thing to do, a distraction from the 'real' problems people have.

And I'm willing to bet, that there is a substantial overlap in the two groups.

I think you are missing my point. I do my taxes too. If you do taxes, how can you not know that items are not rounded down if less than 50 cents. If you are presenting this to the forum for discussion, why are you doing so?

I'm not tearing my hair out worrying about reporting $0.42. 99% of the discussion for me is an enjoyable distraction, much like reading a throwaway paper-back of the day. But yet there is still that 1%, where any discussion on minutiae may actually benefit me or someone else in the future.

In my case, I already spend a lot of time on things that 'don't matter'. And these kinds of discussion are one of them. I'm here sometimes precisely BECAUSE it doesn't matter, for when I'm looking for something to do intentionally that does not matter. For some people that's a crossword puzzle, a doodle on a napkin, looking at advertisements in a magazine. For me, sometimes that's wondering how to account for 42 cents of tax-exempt interest. :D

Cheers,
NS

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Re: Do I report 42 cents of tax-exempt money market income?

Post by alanf56 » Sat Feb 04, 2012 7:51 pm

LadyGeek wrote:
tomd37 wrote:Just because you did not receive a tax document is not a valid reason for not reporting the income. :dollar
Agreed. All income must be reported.
alanf56 wrote:I assume the IRS would not mind if I over reported...
I think so, as it's a difference which must be reconciled. The issue is whether or not there's a penalty (or interest) involved, and in which direction (you to IRS or vice versa).
Um it seems that a difference would happen if I reported ANY amount on this since they will not receive anything from the bank telling them the little amount of interest that was made. Is that not the case???

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Re: Do I report 42 cents of tax-exempt money market income?

Post by LadyGeek » Sat Feb 04, 2012 8:34 pm

Perhaps this is the difference between theory and practice. If the IRS asked the bank how much interest you've earned, I'm guessing they will give the amount to the nearest $.01.
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