I followed the recommended steps to enter my accrued interest adjustment in the 1099-int adjustment box, and my resulting fed tax reduction does not seem to reduce my total tax as I would expect.
Either there is a rule I don’t understand about accrued interest I paid on purchase of my tax free Muni or TTax is not computing the expected result.
For example, I selected “Federal Taxes”>Interest on 1099-INT>entered my 1099 info>”I need to adjust the taxable amount>Continue> entered the stateS for this paid interest>entered the accrued int paid in adjustment box>reason for adjustment as My accured interest is included in this form 1099-int.
Then turbotax recomputed my new tax refund; But even though I am in the 29% tax bracket, it only reduced my taxes by 4.4% for the accurred interest adjustment portion.
So then I repeated my entries directly on the Form view of the 1099-int and it only did the same 4.4% reduction.
So it seems to me that I am not loosing a 25% reduction of my tax due to the accrued interest (29-4.4%) {Over $2000}. Is my thinking wrong or am I not entered something correctly or is there a TTax Premiium Disk version error??
Well...unless you have SS income too, the reduction due to accrued interest (meaning what you paid the seller of that Muni bond in 2022)...that wouldn't affect your Federal taxes at all...or minimally if some was also (
edited
) box 9 $$ on a 1099-INT._________________________
There is an entry problem though, when entering accrued interest for any type of bond on a 1099-INT.
IF you have 2 or more boxes entry $$ for boxes, 1 and/or 3, and/or 8 on the same 1099-INT....you need to break out the $$ for that bond-type into its own 1099-INT.
Thus for accrued interest for a Muni bond you purchased in 2022,......if there are also $$ on that 1099-INT in either box 1 or box 3...you need to remove ALL the $$ in boxes 8, 9, and 13 into its own 1099-INT, and then report the accrued interest on that separate 1099-INT.
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Accrued interest for Muni bonds purchased during the year, does not normally affect taxes due.....except in some cases where it affects the % of SS income that is getting taxed...and sometimes AMT if there are $$ in box 9 of the 1099-INT.
Dear SteamTrain,
Thank You for taking time to respond to my question; but, I still have an issue.
I don't know why accounting for my paid accrued interest shouldn't effect my taxes. Since the seller of these bonds , (which the seller held prior to sale), should be responsible for tax on these coupons because I paid the seller for these interest $ he is entitled to, but the coupons dollars I didn;t receive but show up on my 1009 as income I am responsible for. I should only be required to pay taxes for interest payments, starting when I made the purchase. And this interest should be taxed as income at my marginal tax rate 25%. Thus I would expect TTax to reduce my taxes by (the accrued interest I paid to the seller of the bonds that I purchased from him. multiplied by my marginal tax rate. That reduction in taxes should equal the accrued taxes payed multiplied by my marginal tax rate of 25%. Resulting in a reduction of over $2000. However, TTax only reduced by taxes as if my marginal Tax rate was just 4.4% thus I believe I'm losing over $1500 of monies I should have been refunded. I tried splitting the 1099Int's as you suggested and it had the same effect. Could it be that TTax is not computing properly or that I am doing something wrong?
Well...You said they were Muni bonds...as such, the $$ posted in box 8 of a 1099-INT form are (usually) not taxed in a federal tax return in the first place, and will not be taxed at a 25% marginal rate (if that's where your overall income puts you).....thus declaring the accrued interest for those doesn't affect your Federal taxes at all. (the only time any of it "might" be taxed is if there are also $$ in box 9)
EXCEPT...except if you are retired, and getting SS income (SSA-1099)...where it might affect the % of SS that is Federally taxed...but whether it affects that at all, depends on how much other income you have. SO if you see some reduction in your taxes after entering the accrued interest, and are getting monthly payments form Social Security..check line 6b before and after entering the accrued interest, amount.
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Box 8$$ before/after entering accrued interest, can also affect medical tax credits from Obamacare...but again, that's a different calculation.
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And yes...splitting the 1099-INT box 8,9,13 $$ into it's own 1099-INT is needed to be done by you in the software, before declaring the associated Muni bond accrued interest you paid to the seller, if you had any $$ in boxes 1 or 3 too.