Help center

Transactions

Track taxable income with tags

Transaction tags were designed with one problem in mind, which is tracking taxable income for the estate's fiduciary income tax return. You can use them for other purposes too. This guide covers the taxable income case.

Watch the walkthrough: Using tags, 4 minutes. The video predates some changes to the app. Where they differ, follow this page.

Why accounts alone are not enough

Taxable income does not always line up with the chart of accounts.

  • Some items in one category are taxable and others are not. A dividends account may hold both taxable and nontaxable dividends. Subaccounts can separate them, but that gets messy.
  • Retirement accounts are the bigger problem. With a traditional IRA or another tax-deferred account, the taxable amount is generally what is withdrawn, not the value on the date of death. A withdrawal into the estate checking account is recorded as a transfer, and transfers do not appear in the income sections of a report.

A tag solves both. You mark the transactions that matter and pull them into their own report.

Confirm the tax treatment of any item with the accountant who prepares the return.

Set up the tag

Create a transaction tag named Taxable. Go to Workspace Settings, then Tags, and click Add Tag under Transaction Tags. You can also choose Create New Tag in the Tags column while you enter a transaction.

Tag transactions as you enter them

  • Tag taxable interest and taxable dividends when you enter them.
  • For a traditional IRA or other tax-deferred account, tag the transfer that moves the money out to the estate checking account.
  • Do not tag growth inside the retirement account. A change in value shows in the accounting as a capital gain, but it is not taxed on its own while it stays in the account.

For example, a traditional IRA is worth $150,000 on the date of death and gains $2,500 before it is closed. The $2,500 entry is not tagged. The $152,500 transfer into the estate checking account is tagged Taxable.

Run the report

  1. Open the matter and click the Reports tab.
  2. Choose Tagged Transactions.
  3. In the Tag field, choose Taxable.
  4. Set the Start Date and End Date.
  5. Click Export and choose a format.

Send the file to the accountant along with the rest of the information for the fiduciary return.

One Taxable tag is usually enough. If you want finer detail, create separate tags, such as Taxable Interest, Taxable Dividends, and Taxable Retirement.

Related