Hacker News Reader

Comment by dontbenebby | Hacker News Reader

I may have mispoke. In addition to a Roth IRA, I also had a traditional brokerage account. It's my understanding even if you invest in index funds/ETFs, some of the stocks in the funds generate dividends and those can be taxable even if there's no capital gains tax on the growth in value of the index fund/ETF.

Anyways, whether it was from the brokerage I opened or the IRA, I had a class of income that would have made me need to pay to file, even though my total income was below 65k.

Another thing was foreign taxes paid (because some funds in one of your indexes are international). But they don't let you just say "listen, I'd rather skip the credit for those two whole dollars in taxes and not pay 50 dollars to file"

View on HN

That's a rather big misstatement: most lower income people (most people in general actually) won't be investing post-tax, a 1099-DIV really is quite uncommon

It's still a shitty and stupid situation... but that doesn't mean it's relevant for most free filers.

You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.

Many people's companies don't offer 401ks.

The limit for IRAs is lower than that for 401ks. It is very common to open a brokerage account if you had more than 5500 you wanted to put away.

(Ex: grad student who interns in the summer, contractor with boom and bust pay cycle, or any worker in a company that doesn't offer a 401k)

>You should be able to skip the foreign tax credit if you manually enter the 1099-DIV: simply enter foreign taxes paid field on the 1099-DIV as 0, and your tax software won't offer to credit it.

I'm not sure it's legal to lie about the contents of the 1099-DIV, even if the lie is to the government's benefit :)

Am I correct in understanding that interest paid to deposits at a credit union get you a 1099-DIV? And wouldn't that mean virtually everyone who banks at a credit union would get that form? Also, anyone who owns savings bonds or CDs. Those are out of fashion these days, but many people still get them. Your point stands that these are still not the majority of the population, I just wanted to add some more pathways a person might get such a tax form.

That may have been what caused it as well. It was a while back and my memory is fuzzy.

I've since optimized my investment strategy (small amount in checking, rest in investments)

The IRS doesn't require institutions to generate 1099s for <10 dollars in interest.

>Am I correct in understanding that interest paid to deposits at a credit union get you a 1099-DIV?

No, income from interest paid on deposit accounts is reported on form 1099-INT, not 1099-DIV.

1099-DIV is for dividend income. 1099-INT for interest income. They are are reported different places on your tax form.

Nowadays most people don't get 1099-INTs from their banks or credit unions because interest rates are so low most people are making no more than $1-$2 a year in interest because rates are so low and financial institutions aren't required to issue 1099-INTs for interest income below $10. I used to get them from my credit union back in high school when rates were higher.

All it takes to generate $10 in interest is $1000 in a 1% savings account or $500 in a 2% CD. Anyone with even this small a savings will be issued a 1090-INT, no?

No because rates aren't 1-2% in a typical savings account from a standard bank. If you want 1-2% interest you'll have to have a "high interest savings account" which have historically been online-only offerings and most people really can't be bothered to open up a new account and manage multiple accounts and do the transfers.

For example, if you had $20,000 in a Chase savings account AND had a "Premier Relationship" with them then you'd get an interest rate of 0.04%, or a whopping $8 in interest for the year.

https://www.chase.com/personal/savings/interest-savings/inte...

Its worth noting that rates have gone up significantly in the last year and a half, at one point it got to the point where checking accounts and savings accounts had the same interest rates at many banks and many people stopped using savings accounts entirely at that point.

Online makes it even easier. I opened a >2.5% 12 mo CD online and it took an hour max. No pre-existing relationship with the bank.

The high yield savings accounts tend to have a few strings attached but nothing I’d consider a barrier to someone with at least a job that offers direct deposit.

The biggest barrier to getting a 1090-INT is not the bank or the APR. It is having a low income and not enough money to save.

Of course, I'm not arguing its difficult or there are any barriers, I know its easy. However, I literally can't convince a single person beyond my sister to open up a high interest savings account. People just don't want to be bothered.

Me? I currently have fifteen (15) bank accounts. Chasing those sign up bonuses.

> However, I literally can't convince a single person beyond my sister to open up a high interest savings account. People just don't want to be bothered.

High-interest savings account are crappy as investments, and I'd you have to go to a different institution (or use a CD, or both) lack the frictionless (and instant) connection to primary checking that is generally the reason to use a savings account vs. a decent investment vehicle.

I can't recommend online banking enough. Fidelity and Schwab both have excellent offerings. At least through Fidelity I can buy high interest CDs for multiple banks without having to deal with the hassle you're referring to. Free checking with refunds for any ATM fees anywhere. Easily move money from checking to investment accounts and back. Open new account online within minutes. I have a car account where I set aside money for my next car, an emergency fund, a college savings fund (529), an IRA, and others. Ten accounts in all, all under one convenient interface. They even slurp in the data from my workplace 401k at a different bank so I can track that in the same place.

Ok, the confusing bit for me is that credit union deposits are called shares and the earnings are called dividends. However, you still get a 1099-INT, I believe because these shares are not considered securities.

https://budgeting.thenest.com/report-dividends-credit-union-...

Ah, yes, I can see how that would be confusing.

I never bought into all the credit union jargon ("share," "share draft", etc.) so I forgot they pay "dividends" instead of "interest."

In short, I believe this is the way it works: because credit union members are owners of the credit union, the profit paid to members are considered dividends by dictionary definition, however, the IRS considers them interest by their rules. Just like VA disability, getting a check from the government every month is obviously income, but the IRS doesn't consider VA disability income by their rules.

Reply on news.ycombinator.com