Recording Non-Taxable Dividends

[J. Alex Aycinena]

> From: Anthony <gnucash at inbox.org>
> To: Mike Alexander <mta at umich.edu>
> Date: Sat, 2 Jan 2010 13:39:17 -0500
> Subject: Re: Recording Non-Taxable Dividends
> On Sat, Jan 2, 2010 at 1:08 PM, Mike Alexander <mta at umich.edu> wrote:
>
>> --On January 2, 2010 10:15:21 AM -0700 Richard Ryder <
>> rich.ryder at comcast.net> wrote:
>>
>>  Can anyone suggest how I should record stock/mutual fund dividends
>>> that are reinvested within (U.S.) tax-deferred retirement accounts?
>>> Increases in the number of shares in such investment accounts do not
>>> result from present income. The income is only realized when taxable
>>> distributions are paid from the accounts. Gnucash may not care about
>>> the distinction between taxable and non-taxable income, but I don't
>>> want to have the income counted twice, once when the dividend is
>>> posted and again when the money is withdrawn (and the IRS wants it
>>> reported as "income").
>>>
>>
>> Why not just record them like any other dividends but against a different
>> income account?
>>
>
> Because it's not income.  At least, it's not income to him.  It's income to
> the trust.
>

Of course it's income, and his income - but you're free to not record
it if you like. Mike's answer is my personal preference; I also like
to record the reinvestment details. But there is no 'right' answer
here.

An accounting tool like gnucash is just that - a tool to be used to
satisfy your accounting requirements, whatever they may be. Don't
confuse someone else's reporting requirements with your accounting
requirements (although they may be one of many factors in defining
those accounting requirements). The fact that the US tax laws allows
you to defer income recognition for US Income Tax reporting purposes
doesn't change what you may want for your own financial analysis
purposes. Besides, your state income tax reporting requirements may
differ from the federal ones. Or you may need to report in more than
one national tax system. If they are in conflict, which one is the
'right' one? And besides, they change all the time.

I can understand why people seem to look for some single external
authority for the 'right way' to do these things but, unfortunately,
this doesn't exist. You have to stop and think about your own
requirements from the system and structure your accounts, transaction
processing practices and reports accordingly and there's no short-cut.
Using one external 'authority' (like the IRS, or your bank) as a
surrogate for this is, in my opinion, a mistake that should be
avoided.