See Capital Gains and Qualified Dividends for more details on the "unrealized gains" field, the last field in this screenshot below.
Distributed earnings are of two types. These dollar amounts are included in your tax return each year.
1) Share of Interest and Other Ordinary Asset-Income Percentage (i.e., ordinary interest and non-qualified dividends) and
2) Dividends and Realized Capital Gains Percentage (long-term qualified dividends and cap gains)
These two earnings types are entered on your tax return as income.
The Unrealized Capital Gains Percentage box:
There is a 3rd type that is a little confusing to some, the unrealized long-term capital gains percentage; that is, the capital appreciation that is accrued and taxed, not annually like the first two, but when realized as a position is sold (signaled in MaxiFi by an annual withdrawal shown in Annual Saving and Withdrawal report).
This is the percent of your total return each year that is not of type (1) or (2) above. It accumulates and is added to the dollar amount of unrealized capital gains that you may have entered in the very bottom field. When do you pay tax on this accrued capital gains? In MaxiFi, the event that triggers this tax consequence is a withdrawal from saving per the Annual Saving and Withdraw report and MaxiFi then taxes a pro-rata share of these accrued long term capital gains. If we didn't ask for this percentage amount, we'd be ignoring the fact that each year as the market goes up, you have gains that are not distributed but nonetheless accruing in your brokerage account and subject to long term gains tax when they are sold (withdrawn).
So what percentage settings should I use on this page?
If your total return each year is typically attributable to ordinary interest, say all of your regular assets are in CDs and money market funds or cash, then the default setting of 100% ordinary interest, #3, is appropriate.
If your regular assets are in a brokerage account invested in stocks, bonds, mutual funds, CDs, Treasuries, etc. then your typical total return is likely to be attributable to some distributed capital gains or qualified dividends as well as market gains. If that's the case, you might, for example use settings like this:
- Capital Gains and Qualified Dividends: 15%
- Unrealized Gains: 60%
- Ordinary Interest and Non-Qualified Dividends: 25%
This arrangement above might be thought of as a middle ground between all capital gains vs all ordinary interest income. The higher the percentage of #3, the more cautious or tax intensive the attribution becomes. You might prefer to overstate your taxes than understate them.