Exempt Dividends

[Patrick Michael]

I am already tired of trying to find the state information for exempt interest/dividends.  The investment companies don't make it easy to find this information.  I  spent almost an hour trying to track down 5 company's information.  I'm thinking of putting it back on the client to get the information or charging them an hourly rate, but it would probably cost them more than they would save on state tax.    I am wondering how others handle this. 

[Margaret CPA in OH]

I've used for many years Mutual Funds Publishing Co. https://www.mfpco.com/   For  a handful of my better off clients, the savings can add up.  It isn't just tax exempt interest generically, but some other items unique to Ohio.  And for those better off clients, I just tack on a small sum for research.  I have found that more and more companies, though, are listing this information.

[Corduroy Frog]

You will find entry fields for exempt dividends on your software.  As a general rule, funds for municipals are exempt for Federal, and include issues from state and local governments.  Where the difficulty comes is dividends from federal agencies.  Depending on the state, such dividends can be exempt.  Maybe Margaret's link can provide an exhaustive list of exempt dividend issuers.

[Patrick Michael]

8 hours ago, Corduroy Frog said:

You will find entry fields for exempt dividends on your software.  As a general rule, funds for municipals are exempt for Federal, and include issues from state and local governments.  Where the difficulty comes is dividends from federal agencies.  Depending on the state, such dividends can be exempt.  Maybe Margaret's link can provide an exhaustive list of exempt dividend issuers.

I'm in NY, and you have to add back into NY income any exempt income that came from issues outside of NY. Some 1099s provide the information, but most do not. You have to hunt for the information, and it is very time-consuming.

[Margaret CPA in OH]

This is similar to OH but there is a place at the bottom of the 1099DIV worksheet to indicate that.

[Abby Normal]

Unless the amounts are larger, I just make it all taxable to the state, if the info is not provided. I used to look the mutual funds up, but the MD portion was always a very small percentage. It's usually better to pay a little tax than to pay me to look it up.

[mcbreck]

16 minutes ago, Abby Normal said:

Unless the amounts are larger, I just make it all taxable to the state, if the info is not provided. I used to look the mutual funds up, but the MD portion was always a very small percentage. It's usually better to pay a little tax than to pay me to look it up.

I do this also. I'm in a state with VERY low muni bond yields so if it's added to a mutual fund, it's almost certainly junk. If I was in Illinois, California or New Jersey, this would be an issue and this method would not work. I look through the list of tax exempt income and see if anything specifically says it's from my state but that doesn't take long.

[Lion EA]

If our clients would send us all the pages, we'd usually have the information we need.

CT requires 50% or more of a fund to be CT-sourced before it's CT tax-free, so I scan the "funds" page if available, but I don't worry if not. (I seldom see more than a couple % attributed to CT.) I just put it in the CT-taxable column.

If a client purchased bonds from municipalities and those pages are missing, I tell the client to get me that information. Most of their brokers use mostly bonds from CT municipalities, state public works, etc., so there's a lot of income that can be exempt from CT tax. 

I warn my clients that inherit investment accounts from mom/dad who lived in NY or FL or other states to talk about the investment choices with their own financial advisors soon, discussing things like risk-tolerance and state-sourced funds and municipal bonds.