Double entry and double taxation?

Discussion in 'Tax' started by ms, Mar 14, 2007.

  1. ms

    ms Guest

    My mutual fund sent a 1099-DIV, data in box 1a and 1b are
    identical. So Ordinary Dividends are exactly equal to
    Qualified Dividends. The mutual fund says there has to be an
    entry in box 1a to show where the 1b qualified dividends
    were derived.

    I previously calculated 1040 tax on Taxable Income, tax was
    $7491 including data from box 1a entered in line 5 of
    1040/Sched. B, and then in 1040 line 9a. So it directly adds
    to taxable income.

    I then entered the data from 1b in line 2 of Qualified
    Dividends/Capital Gain Worksheet. Completing the worksheet,
    Line 19- Tax on all taxable income, comes to $2749.

    But it says to "also include this amount on 1040 line 44."
    Does this mean- add it to the existing data in line 44?

    This is not a computed total, this is a simple addition of
    $2749 to the existing $7491 for a new total tax on line 44
    of $10240.

    This appears to be double entry of the same funds and
    resulting double taxation.

    When the 1099-DIV goes to the IRS showing an entry in 1a,
    software looks on my 1040 in line 9a. If I don't show
    anything in 9a, it will show up as an error.

    Advice?

    ms
     
    Last edited by a moderator: Jan 23, 2018
    ms, Mar 14, 2007
    #1
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  2. That's where you went wrong. When you have qualified
    dividends, you do NOT compute the tax on taxable income.
    Instead, you complete 1040 up to but not including the
    "tax" line and then you go to the Qualified Dividends
    and Capital Gain Worksheet, compute your *total* tax
    there, and enter the number you get there into the
    1040 "tax" line.
    Assuming you did the worksheet properly, $2,749 *is*
    your tax. Note the line says "tax on *all* taxable income".
    No, because if you did the form correctly there is *no*
    "existing data" on Form 1040 line 44 at this point.
    No, because the $7,491 shouldn't have been there in
    the first place.
    It's not.
     
    Last edited by a moderator: Jan 23, 2018
    Rich Carreiro, Mar 15, 2007
    #2
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  3. ms

    ms Guest

    My mutual fund sent a 1099-DIV, data in box 1a and 1b are
    Please note: I posted here, then realized with a moderated
    ng, you may not post my message with a munged address. So I
    then found ustaxes, and posted there. I certainly did not
    intend to crosspost.

    I believe I was answered there. To summarize: Qualified
    dividends go in 9b of 1040 and then to the Qualified
    dividend worksheet, the resulting tax from that worksheet is
    the *only* tax on line 44 of 1040.

    What continues to bother me is Vanguard sends me/IRS a
    1099-DIV with the entry in box 1a. If I don't put that in 9a
    of 1040, the IRS computer will see that as an error and bill
    me.

    Advice?

    ms
     
    Last edited by a moderator: Jan 23, 2018
    ms, Mar 15, 2007
    #3
  4. ms

    L K Williams Guest

    You enter the total dividends, from box 1a, on line 9a.
    Then, you enter the qualified dividends, from box 1b, on
    line 9b. You do not add line 9b to other income to arrive
    at your adjusted gross income. You may be creating a double
    tax situation but that is not what the form calls for.

    Lanny K. Williams, CPA
    Nawarat, Williams & Co., Ltd.
    Income Tax Services for Expatriate Americans
     
    Last edited by a moderator: Jan 23, 2018
    L K Williams, Mar 16, 2007
    #4
  5. ms

    L K Williams Guest

    You enter the total dividends, from box 1a, on line 9a.
    Then, you enter the qualified dividends, from box 1b, on
    line 9b. You do not add line 9b to other income to arrive
    at your adjusted gross income. You may be creating a double
    tax situation but that is not what the form calls for.

    Lanny K. Williams, CPA
    Nawarat, Williams & Co., Ltd.
    Income Tax Services for Expatriate Americans
     
    Last edited by a moderator: Jan 23, 2018
    L K Williams, Mar 16, 2007
    #5
  6. ms

    Ernie Klein Guest

    I believe I was answered there. To summarize: Qualified
    Line 44 is your tax based on your taxable income on line 43,
    subject to adjustments (if any) make on the line 44
    worksheet.
    Maybe what you fail to understand is that you report both.
    Line 1a of the 1099-DIV reflects the total dividends you
    received which includes both qualified AND non-qualified
    dividends. Line 1b tells you what part of line 1a are
    qualified dividends and will be subject to a different tax
    rate.

    For simplicity--

    When you do the line 44 worksheet you subtract the amount of
    qualified dividends from your taxable income and eventually
    figure the tax on THAT amount which means that you are only
    being taxed on the non-qualified dividends or in other
    words, you have removed the 1099-DIV line 1b amount from
    your income and figured your tax on what is left), that goes
    on line 16 of the worksheet.

    Then you figure ONLY the tax at the qualified dividend rate
    ONLY on the amount of qualified dividends that you had
    previously subtracted out and enter those (subject to phase
    out limitations).

    Eventually you add the two taxes together and that becomes
    your total tax. You are not taxed twice for the same
    dividends. Your are only taxed at different tax rates for
    different portions of the same dividend. Thus, if you have
    qualified dividends it can only reduce the amount of your
    tax, never increase it.

    The line 44 worksheet is confusing so read it carefully. If
    you miss a step (or interpret the lines instruction
    incorrectly) you will end up with a totally incorrect
    result.
     
    Last edited by a moderator: Jan 23, 2018
    Ernie Klein, Mar 16, 2007
    #6
  7. That's correct.
    Why on earth does it bother you? 1099-DIV box 1(a)
    is *all* dividends, and box 1(b) is the portion of
    the 1(a) dividends that are qualified. What's the
    problem you have with that?

    If you still think you're being double taxed, you need
    to follow the qualified dividends and cap gain worksheet
    more carefully.

    You'll see that it subtracts out qualified divs and
    net long-term cap gain from taxable income before
    asking you to compute the tax on taxable income.
     
    Last edited by a moderator: Jan 23, 2018
    Rich Carreiro, Mar 16, 2007
    #7
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