How do I record interest earned in prior years?

Marvin Gardens

Some years ago my mother opened an Annuity account. We set up an Asset account in Quicken with the initial balance and quarterly balance adjustments to reflect the interest income. The interest income is not taxable until she withdraws it.

She has started taking money out which I record as a transfer from her annuity to her checking account. The financial institution says that they will pay out the earned interest first, and send her a 1099 in January.

How do I track this in Quicken so that the interest money shows up on the tax reports?

My first idea was to categorize all those quarterly balance adjustments as Interest Income. That’s fine, except the 2020 Tax report doesn’t show interest paid in prior years.

I could change the category of the transfer transactions, but that field already contains the transfer account.

Any ideas?

q_lurker

Even as an "Other Asset" account, you should have a tax-deferred option available.

You should also then be able to have a Tax Schedule option.  Both those would be under editing the Account details.  You may get what you want with setting the Transfers Out tax line to Schedule B:Interest income.

As I understand your description, if the annuity account now has $10,000 of 'principal' and $1,000 of accrued interest, the first $1,000 withdrawn from the account will be taxable as interest income.  Any further withdrawals will not be taxable.  That being the case, once you get to the stage of withdrawing from the principal, some further shenanigans may be required to differentiate withdrawals of the two parts.  (I assume even at that stage, she would be accruing and withdrawing annual interest as well as drawing down on the principal.)

FWIW: I would have been inclined to set it up as an investment account, but I am also not an annuity investor.  I can't really say if one way vs the other is better.        

Marvin Gardens

That's exactly what's happening. Setting the Tax Schedule in the account details made it better, but now all the withdrawals, including the principal, show up as interest. It's not a huge problem. We'll get a 1099 in January, but it would be nice to have accurate info for planning purposes

Thanks

q_lurker

What about breaking it into two separate accounts -- Annuity and Annuity-Accrued Interest.  Different tax schedules accordingly.  Certainly not ideal, but maybe better?

Marvin Gardens

I think I have a solution. I called the bank and got the breakdown of interest & principal for each transaction. Then I changed the amount in the transfer transaction to just the interest. I added another transaction for the principal, but set the category to a new one I have called “To Checking”

In the checking register I edited the transaction to split the category. The first line with the interest points back to the annuity. I added another line with a new category “From Annuity” that has the principal.

It’s clumsy but it works. My Tax Report show the interest and only the interest as income. And there are only a few transactions to fix.

volvogirl

Come back in January and let us know if the 1099R shows the right taxable amount or if it just shows the total distribution.  I'm curious.