Recording gross income in moneydance for tax return reporting

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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

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    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

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    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

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    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

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    "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

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    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

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    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

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    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

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    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.

  9. 9 Posted by dave209 on 03 Aug, 2020 09:14 PM

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    Not sure about this approach.
    Given Payment = expense category and Deposit = income category.
    You have suggested:
    Pension
    Net (income)
    Tax (income)
    Pension sink (expense)

    So the math works because Net + Tax - Gross = 0. So no effect upon account balances as these three transactions cancel each other out in MD.
    However i struggle with the concept of gross income being considered an expense, and income tax being an income.
    I am also wary of the reporting. I would expect the pension sink (used to record gross income in your example) will appear on the expenses side of the report which aint immediately comprehensible. Similarly with Tax being on income side of report.

    I believe gross-up of the net income as suggested in the OP will have both gross-up and net on the income side of the report which I would find easier to understand in the future.
    Also using a gross-up amount, allows visibility of the monthly pension net income verified by third party bank statements - I think this helps with reconciliation at the end of the year.
    Your option requires Net income to be manually entered so wont have this check.

  10. 10 Posted by dwg on 03 Aug, 2020 09:28 PM

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    Moneydance follows accounting rules so if there are credits of 2000 there must also be debits of 2000. Hence to get money in the bank, and the money has to come from somewhere in every case, it has to be drawn from an account or a category (both are really the same sort of thing). What you do not have however is a Pension account or investment to draw the money from so I used a sink account, which is not reported on, to provide the source.

    Even with Salary payments Moneydance follows this principle in that one side of the transaction is going to the bank account and the other side is really coming from the Salary income category. Categories are defined a little differently to accounts.

    All I can suggest is that if you have worked out a method that works for you and gives what you want that you use that.

  11. 11 Posted by dave209 on 05 Aug, 2020 08:27 PM

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    I agree. Thanks for your suggestions. There is a balance with how much detail I record in moneydance, the time taken and the results returned. At this time using a gross-up method seems to be a solution without serious downsides given the amount of time I want to invest, so i will continue with that.

  12. 12 Posted by dwg on 05 Aug, 2020 10:03 PM

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    When there is partial details there is always a trade of how much detail to record vs the benefit.

    In your original post you look to be recording the tax payments in a simple double sided transaction, that mirrors the way I enter some data from mutual fund reports to get it into taxation reporting. There are a couple of things to get right to make sure the approach worms. The initial one if to determine which category is the Debit and which the credit to ensure the numbers work the right way and the other is to set up the category structure right so that Moneydance will give you the totals you are looking for.

    The difference for me is that I am working in an Investment account so can do it in a single transaction but I can see how it would also would work in a split transaction in a standard account, it is an interesting approach that I had not thought of.

    I cannot theoretically see any downsides but it is an approach I want to investigate a little more as an alternative methodology, having a way to do it in a bank type account has been a hole without a plug, this looks like it could be that plug. The only downside I can see is that what is happening is a little bit obscure, so it may well be that the description/memo fields need to provide more detail.

    Thanks for the idea.

  13. 13 Posted by madeleineaverya... on 24 Sep, 2020 03:35 PM

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    Shit, I hate taxes. Why do we need to pay that much? I have a few jobs and it is so hard to manage to pay all the taxes. Any way I can do it but it is a little hard. The last job I found my chance on https://themoneymix.com/passive-income-ideas/ and from here I have the biggest part of my money and I am so thankful that I found it. Now I have a lot of money and I am happy because my all work is worthying.

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