Recording gross income in moneydance for tax return reporting

dave209's Avatar

dave209

31 Jul, 2020 07:28 AM

i receive a monthly pension payment that is net after deduction of PAYE income tax for tax due from previous tax year. A tax return requires both gross and net annual pension income.

How to have moneydance represent this in reporting?

I am thinking I could add an annual transaction dated end of tax year, either on receiving bank account or a "shadow" bank account.
The transaction might be split with Payment = £0
Then 2 sub-transactions in the split
1. Income:Pension:PensionProvider-Net:Gross-Up (tax-related) Deposit = total income tax paid by pension provider for year
2. Expense:Tax:IncomeTax Payment = total income tax paid by pension provider for year

Transaction 1. is then seen in income/expenses detailed report which will tally net income PensionProvider-Net and also provide sub total (the gross amount the I need to record) where PensionProvider-Net + PensionProvider-Net:Gross-Up.

Any downsides with this approach? Thanks.

  1. 1 Posted by dwg on 31 Jul, 2020 08:38 AM

    dwg's Avatar

    I'm a fellow user.

    There are a number of approaches you could take.

    Do you get the figure each month for the tax that is paid, i.e. do you have the gross amount and the tax amount each month?

  2. 2 Posted by dave209 on 31 Jul, 2020 03:49 PM

    dave209's Avatar

    in fact there are 7 pensions some have monthly summary, some just the P60 that they all send at end of tax year.
    the transactions are getting imported to MoneyDance via csv which i send through a custom script which allocates to correct category (ie PensionProvider-Net) and outputs amended csv.
    i want to avoid editing the moneydance receiving account's monthly transaction that MoneyDance creates when parsing the csv - that would be a manual input of 5 x 12 x 2 transactions.

  3. 3 Posted by dwg on 31 Jul, 2020 09:29 PM

    dwg's Avatar

    I was actually thinking of doing it on the monthly transactions, with a specific category set up something like:

    Pension
         Tax
          Gross

    Entering the gross and tax amounts and with this structure MD reporting would calculate the net Pension, as the Tax even though it would be defined as an Income item would actually be an expense so shows up as a negative number so calculates correctly.

    I am assuming a P60 is some form of annual Tax report you receive in relation to the pensions.

    Are the pensions paid from investments that you have recorded in Moneydance or are the source completely outside of MD and you only see the pension payments in the same way as you would see Salary or wages?

    What needs to be worked out is a way of recording the data from the annual reports that lead to reporting data in MD but that are not value transactions i.e. they do not increase the value in accounts as that would be double counting, in effect they just need to pass through the account. I have a way I do that with pensions that are paid out of investments that are recorded in MD. For money coming in from sources outside of MD I would have to ponder that one a bit.

  4. 4 Posted by dave209 on 02 Aug, 2020 08:34 PM

    dave209's Avatar

    "P60 is some form of annual Tax report you receive in relation to the pensions." - correct.
    "the source completely outside of MD and you only see the pension payments in the same way as you would see Salary" - correct.
    "I was actually thinking of doing it on the monthly transaction" - yes i thought that was what you were inferring based upon your question re "...the figure each month for the tax that is paid".

    Seems to me to be 2 general options for recording these net payments:
    Either record the gross amount less deductions - so you need a report to calculate the net received; maybe use for salary with payslip basis for the data; very easy to categorise the gross and deductions via the payslip.
    Or record the net received and separately record a gross-up less deductions - you need a report to calculate the gross amount as suggested in the OP. Efficacy is better as the receiving bank shows the net amount anyway and imported via csv, and just 1 annual transaction deals with the gross up to give the gross annual total for reporting on tax return.

    There should not be any effect on balances since the recording of the gross up transaction is £0 as the split on categories IncomeTax and Gross-Up cancel each other.
    If you use a made up or shadow account just to record these annual gross up transactions, you have insight into where this is done. And no effect on balances if you delete the shadow account - obs the report will then not calculate the gross amount as deleting the account will delete the IncomeTax and Gross-Up transactions.

  5. 5 Posted by dwg on 02 Aug, 2020 09:34 PM

    dwg's Avatar

    The problem that I see with a payment amount of 0 and a split of the gross and tax amounts is that it should not work. The net amount of a split transaction is what should end up in the account, in other words it has to all add up.

    I have been playing around with some transactions but have yet to come up with a way of doing it in a satisfactory way.

  6. 6 Posted by dave209 on 03 Aug, 2020 06:56 AM

    dave209's Avatar

    By "gross up" i mean the collins dictionary meaning, to increase ( net income) to its pretax value, for example where if you gross up net income or wages, you increase them to their value before tax or deductions.
    So when you mention "a split of the gross and tax" are you using the "gross" or the "gross up" amount?

    net monthly income = n (income category: retirement income: pensions: pensionName: net)
    so annual net income = 12n
    month gross income = g
    month income tax = i (expense category: tax: incomeTax)
    annual gross-up = u (income category: retirement income: pensions: pensionname: gross-up)

    annual gross: 12n + 12i = 12g

    receiving bank transactions: 12 x n
    shadow bank transaction (a split): u - 12i = 0 (ie u = 12i)

    Income and Expenses (detailed) report (for annual gross income): 12n + u = g

    The maths seems correct and I have tested this in moneydance without obvious issues. Yes u do not have visibility for each month but I am wondering if the downside is about the concept rather than the maths.

  7. 7 Posted by dave209 on 03 Aug, 2020 06:59 AM

    dave209's Avatar

    Apologise should be:
    Income and Expenses (detailed) report (for annual gross income): 12n + u = 12g

  8. 8 Posted by dwg on 03 Aug, 2020 08:34 AM

    dwg's Avatar

    I believe I have been able to post a transaction that would be suitable for use with data from an annual report that does not contribute to account balances but is reported on in the I & E report.

    I created 4 categories:

    Pension
       Net
       Tax

    Pension sink

    The indentation shows the Category/sub category relationships

    For testing purposes I used a Net amount of 1500 and a Tax amount of 500, thus the gross amount is 2000

    In the split transaction I entered a Payment amount of 2000 against the category of Pension sink. I then entered a Deposit amount of 1500 against the category Pension:Net and a further deposit entry of 500 against the category of Pension:Tax.

    These entries appear to report correctly in the Income and expense detailed report.

Reply to this discussion

Internal reply

Formatting help / Preview (switch to plain text) No formatting (switch to Markdown)

Attaching KB article:

»

Attached Files

You can attach files up to 10MB

If you don't have an account yet, we need to confirm you're human and not a machine trying to post spam.

Keyboard shortcuts

Generic

? Show this help
ESC Blurs the current field

Comment Form

r Focus the comment reply box
^ + ↩ Submit the comment

You can use Command ⌘ instead of Control ^ on Mac