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cj5
Level 2

For my California return, how do I handle HSA dividends attributable to a treasury mutual fund?

In California, HSA interest, dividends, and capital gains are taxable. EasyStep allows you to enter each of these 3 individually and they get added to your CA income. I understand how to do that part. However, in my case I have dividends attributable to a treasury mutual fund that gets 80% of its dividends from "government obligations", and therefore 80% of these dividends are exempt from CA state income tax. How do enter this in TurboTax? Do I simply reduce the dividend amount I enter to 20% of the actual amount? And just to be clear, there is no 1099-INT, and therefore no box 3 entry to make all this work automatically.

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BillM223
Expert Alumni

For my California return, how do I handle HSA dividends attributable to a treasury mutual fund?

Yes, there is a limit to the amount of automation that can be done.

 

Yes, manually adjust your dividends entry, then enter everything, and write up copious notes on what you did and why in case the Franchise Tax Board ever asks you.

 

The important thing is that you get the right numbers on the tax forms, no matter what you have to tell TurboTax...but the FTB doesn't get around to a lot of stuff for three or four years, so write it all down while you remember it.

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2 Replies
BillM223
Expert Alumni

For my California return, how do I handle HSA dividends attributable to a treasury mutual fund?

Yes, there is a limit to the amount of automation that can be done.

 

Yes, manually adjust your dividends entry, then enter everything, and write up copious notes on what you did and why in case the Franchise Tax Board ever asks you.

 

The important thing is that you get the right numbers on the tax forms, no matter what you have to tell TurboTax...but the FTB doesn't get around to a lot of stuff for three or four years, so write it all down while you remember it.

**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
cj5
Level 2

For my California return, how do I handle HSA dividends attributable to a treasury mutual fund?

> Yes, manually adjust your dividends entry, then enter everything, and write up copious notes on what you did and why in case the Franchise Tax Board ever asks you.

 

Ok, thanks. That was my plan.

 

The FTB doesn't even know about the source of these dividends (no 1099) and the tax return will show no evidence of them having been adjusted, only added to CA (540) line 3 column C (and I'll only be adding 20% since 80% is from government obligations). So I don't suspect they would have any reason to inquire about them unless doing some random audit, in which case possibly they would ask a question such as "I see you entered additional dividends on CA (540) line 3 column C. Could you please provide details on the source of these dividends." So yes, having notes and records handy would be good if this comes 3-4 years down the road.

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