Most brokers download the correct income type into PortfolioCenter; normally, you should not need to change the income type. Here’s a simplified definition of the income types you typically see with equity and mutual fund positions.
- Dividend: This is the most common income type. It is usually paid in cash and counted as taxable income for most securities.
- Interest: Usually income paid from a money market or cash equivalent. You may also see this type on a bond mutual fund when it is the cumulative amount of interest income.
- Long-Term Gain: Income paid to account for gains due to the sell of assets in the mutual fund which were held longer than 12 months.
- Short-Term Gain: Income paid to account for gains due to the sell of assets in the mutual fund which were held less than 12 months.
- Non-Qualified Dividend: A dividend paid by a “non-qualified” security or a dividend paid by a “qualified” security, but not held for the appropriate amount of time, as defined in the tax code.
- Qualified Dividend: A dividend paid by a “qualified” security after being held for the appropriate amount of time, as defined in the tax code.
Most domestic (United States) equities are considered to be Qualified. The importance of the qualified classification is that the rate applied to the income is different than non-qualified income and it impacts the after-tax yield and taxable equivalent yield on PortfolioCenter holding reports. The Income Report will still show income as qualified or non-qualified, even if the income type is set to just dividend.
- Payment in Lieu of Dividend: Payment of a dividend on shares loaned to a short seller. This classification of income is required because income on these securities is never considered to be qualified.
- Unclassified Gain: Any gain that cannot be classified as any other income type listed above.
You should also be aware that after the end of the year, many mutual funds determine the tax status of their distributions (or change it). If you’ve ever received a corrected 1099 in March, you have seen this before. This reclassification is NOT downloaded to PortfolioCenter by any broker and the Income report will not match the 1099s.