dividends and foreign taxes

Patsy Hagen on

Our club uses Smith Barney and have just received the 1099.
We bought an ETF in Brazil. I posted the dividends as
qualified but now see that that were not all qualified so
will have to change those to match the 1099. They were
posted to our account in 1/4/08 but the 1099 states
reportable in 07, how do I handle the difference in dates.
Part of the income was paid as foreign taxes so I am
assuming that this was paid from the dividend and will have
to add it to the box at the bottom, is this correct. We
also bought and sold a REIT in 07 so wll have some changing
to do there also, so glad I emailed about that last year and
you all suggested selling it.
Patsy

Rip West on

IClub has a TechNote on this, which I am enclosing below:

Title: How to record distributions reportable in one year, but not received until the next Bug:

Issue:
Form 1099 from broker includes a distribution to be reported in the current tax year that wasn't received until the subsequent year.

Cause:
Mutual funds and Real Estate Investment Trusts (REITs) are allowed to declare certain dividends taxable in one year that are not paid until the next. The problem is how to record this in the investment club books in the year before it was received. A further problem results from the fact that, when the distribution is actually paid in the next year, we do not want to record it as income.
There can be an additional complication. Some funds never pay the distribution, but, instead, declare a 'deemed dividend', which must be picked up by the shareholder as income even though it is not received. Very often, the fund pays the tax on this 'deemed dividend'. How to enter this distribution and get credit for the tax paid is the subject of another article.

Resolution:
The solution is fairly simple. On December 30, record the distribution as a capital gain dividend or ordinary dividend, using the suspense account as the bank account. This will get the distribution recorded as income in the proper year. In the following year, when the money is actually received, record the receipt as a transfer from Suspense to Cash. This will zero out the suspense account, keep the cash account in balance, and record the item as income only in one year.

Rip West
Saint Paul, MN

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