Question

Another issue with incorrect state tax exempt DIV

Forum|Forum|1 year ago
March 3, 2025
1 reply
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Have a CA tax exempt mutual fund in several accounts. If I look at the tax-exempt dividends on the Federal Schedule B, the CA amounts are correct. However, the amount from CA sources transferred to the state tax form is incorrect and much higher. Anyone else see this. Seems a bug. Using TT Deluxe Desktop Windows. It is up to date (though I no longer have any choice; it won't run without updating if I am connected to the internet.)

This was a last minute issue....I was about to file but it was bugging me that the amount of CA tax-exempt interest was seemed suspiciously high.

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xom21fripp102Author

Just wanted to clarify, I looked at the Federal Dividend Smart Worksheet. The amounts tax-exempt interest from CA are correct there. But a higher amount is transferred to my CA state module. In the CA portion, I tried deleted the adjustments worksheet, but it got recreated with the same incorrect amount of tax-exempt interest. I cannot find where/how this amount is transferred to the CA module and would rather not delete the entire state form.

SteamTrain

Someone else had this issue, where they had apparently put in CA as the one state...in the top bullet point, on the follow-up page that asked about what state's the distribution of tax-exempt dividends came from...then selected the second bullet point (Multiple States) to do the breakout of CA $$ from everything else.

The problem can be traced to the first bullet point....THAT selection needs to be set to Multiple States and Not CA.

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Easiest Fix if one uses desktop software, is to switch to Forms Mode......open the 1099-DIV where you do the CA exempt dividends break-out...go to the very bottom of the box for box 12, there is a line labelled "State where the dividends were earned Postal code..." Set that to "XX" and then the data from the breakout boxes should transfer to CA forms correctly.

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IF using the "Online" software, the fix is more involved.

Edit the 1099-DIV, and when you get to the page which asks where the tax-exempt dividends came from

1) Write down your breakout $$ values of CA, and Multiple States.

2) Edit it to put in just one total entry for all of it being "Multiple States".

3) Continue thru any pages that follow until you back out to the display of all the 1099-INT and 1099-DIV forms.

4) Edit that 1099-DIV again, and when you get to the page which asks where the tax-exempt dividends came from...

5) Select the top selection point, and make sure it is set to "Multiple States" . IF it isn't already, scroll to the bottom of the list of states and select "Multiple States".

6) NOW...select the second bullet point, and enter your CA, and Multiple States $$$ amounts in the boxes provided.

That should fix it.

____________*Answers are correct to the best of my knowledge when posted, but should not be considered to be legal or official tax advice.*

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xom21fripp102Author

Thanks SteamTrain. I tried that, it didn't help. Two things I notice. It is an issue with one 1099-DIV for an account which contains a CA only muni fund plus a national (many state) muni fund.

1. On the Schedule B, it reports only many state (xx) for tax-exempt interest.

2. The amount of over-transferring of the CA tax-exempt interest to the CA state return is the amount of CA interest earned in this account. In other words, it seems to have been double-counted.

I wonder if this matters. The double counting TE interest is for fund which 100% CA earnings. So if there is an incorrect excess amount of CA TE interest reported on the CA form 540, but it is 100% is tax-exempt in CA, it will not affect my tax liability at all. But perhaps some computer of either the IRS or CA FTB trying to match up federal and state returns may flag it as a problem? If the IRS notices it, possibly it might affect Medicare IRMAA.

Again, my issue is in TT Deluxe.