Turbotax issues on non-qualified dividends
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New Member

Turbotax issues on non-qualified dividends

1099 forms from stock trading contain qualified and non-qualified dividends.

Base on what I understand, these values are not accurate and should not be used since qualified dividend needs to meet a holding period.

1. I don’t see Turbotax ask or give any hint to declare qualified dividend. Turbotax just import all data from broker (give Turbotax username and password, then it log in and auto import). This situation put the users to the risk of violate the holding period.

2. If this is Turbotax limitation, I must manual calculate what items are qualified, what are not. If so, how can I enter these values to Turbotax?

3. The qualified dividends that manual calculate will be different with qualified dividend list in 1099 form from broker. Does it trigger any flag from IRS?

Thank you.



10 Replies
Level 12

Turbotax issues on non-qualified dividends

Of course the instructions for 1099-DIV preparers do instruct the broker to observes all the rules when it comes to what amounts can end up in the "Qualified Dividends" box of the 1099-DIV, and those rules have been in place for many years.   Accordingly, I'd be surprised if you're seeing lots and lots of "classification" errors here.  

What's the name of the broker issuing you the 1099-DIV?  You may want to talk to them and determine if what you're reporting seeing "... these values are not accurate..." is, in fact, the case.
Level 9

Turbotax issues on non-qualified dividends

actually brokers often do not report this correctly.....  I know Fidelity does not and TD does not, I am not normally a ST trader but, I know my ST trades over ex-div dates have been misreported often.  they also do not program for hedges and options that may exist in other accounts..  IRS is not known to look at this area.  It would be insignificant for most other than for larger day traders and options traders as it's just the difference in tax rates.  Another broker misclassification is dividends that should be appropriately interest on cash balance that we are supposed to adjust that IRS also normally ignores.
Level 12

Turbotax issues on non-qualified dividends

Ah... I have no experience here since I've never been been a trader.   Overlooking the "...hedges and options that may exist in other accounts..." is understandable but it seems like the rules based on holding periods would be simple to program.  
Level 9

Turbotax issues on non-qualified dividends

yes it should be as well  as interest classified as dividends....  they would need a simple program and prioritize it, all about capital allocations and the fact that the regulators have never prioritized it for them.
Level 9

Turbotax issues on non-qualified dividends

After you enter the dividend, and if it was misreported, In TT after you hit continue, there is an option to check "Some qualified dividends or Section 199A dividends are from securities that didn't meet the required holding period."  After checking this box and hitting continue, you will be able to enter the amount misreported.

A dividend being qualified or not is determined by a basic formula: If the shares are owned for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date, then the dividend is qualified; otherwise it is not.There are more rules:
Another requirement is that the shares be unhedged; that is, there were no puts, calls, or short sales associated with the shares during the holding period.

Mutual funds
All of the following requirements must be met:

The fund must have held the security unhedged for at least 61 days out of the 121-day period that began 60 days before the security’s ex-dividend date. (The ex-dividend date is the date after the dividend has been paid and processed and any new buyers would be eligible for future dividends.)
For certain preferred stock, the security must be held for 91 days out of the 181-day period, beginning 90 days before the ex-dividend date. The amount received by the fund from that dividend-generating security must have been subsequently distributed to you.
You must have held the applicable share of the fund for at least 61 days out of the 121-day period that began 60 days before the fund’s ex-dividend date.
Stock
You must have held those shares of stock unhedged for at least 61 days out of the 121-day period that began 60 days before the ex-dividend date.
For certain preferred stock, the security must be held for 91 days out of the 181-day period beginning 90 days before the ex-dividend date.
New Member

Turbotax issues on non-qualified dividends

1. Thank you maglib. I didn't enter dividend. I gave Turbotax my username and password to log in to my broker. So Turbotax auto import all data. I didn't see any hint/guideline/check box as you mentioned ("Some qualified dividends or Section 199A dividends are from securities that didn't meet the required holding period.").

2. After finish, I came back to Turbotax many time to looking for any way to enter non-qualified dividend but I couldn't find out any.

3. Look like this is limitation of Turbotax and it need to be upgrade. Turbotax said the user don't need to know any about tax, just follow its guideline to do. If so, for each dividend item, Turbotax should have a form so user can enter data to find out if it is qualify or not. Or Turbotax should have function to auto detect if qualified or not since all data relate to share, buying date, selling date available.
Level 9

Turbotax issues on non-qualified dividends

you can go to forms mode and adjust the dividend there as easiest method....  just remove amounts from the qualified amount.  TT gets no indication from the broker that they are non-qualified.  Brokers should honestly not be reporting them wrong, such an easy fix but, they won't do it till regulators require it.  Unless the amount is significant, I don't see the IRS going after it....  you should be able to manually adjust any imports from brokers during the interview. Due to so many times getting bad broker data, I've relinqueshed myself to always entering manually.....  I promise the brokers often send incomplete files or misc categories in data fields that it was agonizing fixing. I started entering summary mode and sending details to IRS in a download from the broker.
Level 2

Turbotax issues on non-qualified dividends

Interesting discussion and applicable to me given I am preparing my return now and have the same concern regarding the 199A dividends not meeting the holding period.  Once question that was not answered is whether adjusting the 199A dividends for a lower amount due to inaccurate reporting would trigger an audit given a mismatch in reported amounts - does anyone have any thoughts on this?  Thank you

Level 2

Turbotax issues on non-qualified dividends

I am trying to understand non-qualified dividends as well.  It seems there is another factor to consider, if the option is in the money or not at the time of the ex dividend date.  I am having trouble determining if this rule is based on option (sell covered call) being in  money at the time it is opened to result in the non-qualified rate, or if the call moves into the money at some time before it expires pays an ex dividend during the time it is in the money.  Any assistance would be appreciated

Employee Tax Expert

Turbotax issues on non-qualified dividends

Let's try an example:

 

September 9  An investor buys 100 shares of XYZ common stock for $58

October 12     The stock price closes at $56

October 13     The investor writes an XYZ December 55 call

                       This option is an in-the-money qualified covered call

November 14  The investor closes the XYZ December 55 call by making a closing purchase

November 16  XYZ stock goes ex-dividend to shareholders of record on November 18

December 2    The investor sells the XYZ stock

 

Tax treatment:

  • The investor is not entitled to the 15% rate on the dividend, because the stock was not held for 61 days during the required 121-day period.
  • The stock was deemed to be held from September 9 to October 13 (34 days) and from November 14 to December 2 (17 days) for a total of 51 days.
  • The period from October 13 to November 14 is not included in the holding period because of the in-the-money covered call.

Note: Writing an at-the-money or out-of-the-money covered call allows the holding period of the stock to continue. In the example above, had a 42.50-strike call or a 45-strike call been written with the stock price at $41, then the investor would have met the holding period requirement to be eligible for the lower tax rate of qualified dividends.

 

I recommend that you seek the advice of a Licensed Financial Adviser, because this isn't an area of TurboTax expertise. 

 

Please see  Covered Call Qualified Dividend

 

 

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