Tax Question - Exempt Dividends

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is1971
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Joined: Mon Jan 24, 2011 9:23 pm

Tax Question - Exempt Dividends

Post by is1971 »

Apologies in advance if this tax question is off-topic. Administrators, feel free to delete it if it is.

In 2020 I held positions in the following three municipal bond funds: VMSXX, VTEB, VMLUX. My basic understanding was that the dividends from these funds were tax exempt on federal, but not state taxes. In any event, at the end of the consolidated 1099 from my broker, there are several pages of 'Supplemental Tax' information. Included in this information is a page which includes a disclaimer about the information being the best available at time of printing and subject to change, etc, etc and three tables, one for each of the aforementioned funds. Each table lists the following three columns: 'State,' 'Percentage,' and 'Amount.' I live in AZ and the table for VTEB, for instance, includes this row: State: AZ, Percentage 1.53%, Amount, $215.65.

Does this mean that my dividends for this fund should only have been taxed at 1.53% rather than the default rate? If that's the case, does anyone know where I would have entered that information? I used Tax Act and I don't think that I was ever prompted to enter any fund specific information for my exempt dividends. Anyway, if anyone could point me in the right direction here, I'd really appreciate it.

Thanks
livesoft
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Re: Tax Question - Exempt Dividends

Post by livesoft »

I think it means that 1.53% of your tax-exempt dividends came from bonds issued by entities domiciled in the state fo AZ. And 1.53% of those dividends amounted to $215.65, so your total tax-exempt dividends was about $14,095.
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sycamore
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Re: Tax Question - Exempt Dividends

Post by sycamore »

Agree with livesoft's reply.

I don't know the tax laws of AZ, but likely you could save the state tax on those $215.65 dividends. If your AZ tax rate is 4.5%, you'd save $9.70 on state taxes. If TaxAct is like TurboTax, there's some way to enter information about how much of the tax-exempt dividend is also exempt from your state's taxes.
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Kagord
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Re: Tax Question - Exempt Dividends

Post by Kagord »

I actually do this, and can confirm Turbotax handles pretty well transferring the exempt amount to the state return. And, I just do the math in a spreadsheet and print/save it with the paperwork, for the remote chance being asked to provide this if a state audit were to occur.
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HueyLD
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Re: Tax Question - Exempt Dividends

Post by HueyLD »

There is gotta be a way to enter AZ specific muni interest amount in Taxact. You need to go back to the Q&As.
Topic Author
is1971
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Re: Tax Question - Exempt Dividends

Post by is1971 »

livesoft wrote: Sat Feb 20, 2021 12:52 pm I think it means that 1.53% of your tax-exempt dividends came from bonds issued by entities domiciled in the state fo AZ. And 1.53% of those dividends amounted to $215.65, so your total tax-exempt dividends was about $14,095.
Thanks livesoft; that makes sense. The actual amount was $14,048, but the difference is probably just rounding somewhere. So I guess this implies that $215 of the $14,048 should have been exempt from state income tax. The AZ rate is like 4.1% so that would only be a savings of like $9; not enough to deal with filing an amendment. I'll make a mental note though; so that I know ho to handle it next year.

Thanks again!
Last edited by is1971 on Sat Feb 20, 2021 3:43 pm, edited 1 time in total.
livesoft
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Re: Tax Question - Exempt Dividends

Post by livesoft »

is1971 wrote: Sat Feb 20, 2021 3:16 pm.... So I guess this implies that $215 of the $14,048 should have been exempt from state interest.
I think you mean "state income tax."
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HueyLD
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Re: Tax Question - Exempt Dividends

Post by HueyLD »

HueyLD wrote: Sat Feb 20, 2021 3:07 pm There is gotta be a way to enter AZ specific muni interest amount in Taxact. You need to go back to the Q&As.
“ If the interest is exempt from Federal ONLY OR Federal AND State, please follow theses directions:

From within your TaxAct return (Online or Desktop) click on the Federal tab. On smaller devices, click in the upper left-hand corner, then select Federal.
Click Investment Income to expand the section, 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 Step-by-Step Guidance to enter or review the information.
When you get to the screen titled Interest Income - Tax-Exempt Interest, enter the appropriate amount in Box 8. NOTE: If you have FEDERAL AND STATE EXEMPT interest, Continue to the screen titled Interest Income - State Tax-Exempt Interest, then click Yes. Enter the amount from Box 8 that is also state exempt in the field Amount from box 8 that is both federal and state exempt interest.”

https://www.taxact.com/support/1188/201 ... t-interest
Topic Author
is1971
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Re: Tax Question - Exempt Dividends

Post by is1971 »

livesoft wrote: Sat Feb 20, 2021 3:23 pm
is1971 wrote: Sat Feb 20, 2021 3:16 pm.... So I guess this implies that $215 of the $14,048 should have been exempt from state interest.
I think you mean "state income tax."
Oops. Fixed. Thanks!
Topic Author
is1971
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Re: Tax Question - Exempt Dividends

Post by is1971 »

HueyLD wrote: Sat Feb 20, 2021 3:27 pm
HueyLD wrote: Sat Feb 20, 2021 3:07 pm There is gotta be a way to enter AZ specific muni interest amount in Taxact. You need to go back to the Q&As.
“ If the interest is exempt from Federal ONLY OR Federal AND State, please follow theses directions:

From within your TaxAct return (Online or Desktop) click on the Federal tab. On smaller devices, click in the upper left-hand corner, then select Federal.
Click Investment Income to expand the section, 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 Step-by-Step Guidance to enter or review the information.
When you get to the screen titled Interest Income - Tax-Exempt Interest, enter the appropriate amount in Box 8. NOTE: If you have FEDERAL AND STATE EXEMPT interest, Continue to the screen titled Interest Income - State Tax-Exempt Interest, then click Yes. Enter the amount from Box 8 that is also state exempt in the field Amount from box 8 that is both federal and state exempt interest.”

https://www.taxact.com/support/1188/201 ... t-interest
Thanks! I poked around the help last night; but couldn't find anything.
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