Tax tracking for giving account

walter bender

I have an account which is used for charitable giving. Transfers in are designated in "Account Details" in the "Tax Schedule" tab to be reported in Schedule A:Cash charity contributions. Two of the four contributions report correctly in the Tax Summary Report but two do not. I have deleted the transactions and reentered them to no avail. Help!!?? Thanks!

Frankx

Hi @dshovel,

First off - a couple of observations on your post. 

You are correct that you should not "selI the shares in your taxable account" the reason you shouldn't do that is not only related to tax reasons but the fact is that you did not sell them at all.  You actually gifted them (i.e. transferred the stock in-kind) to a charity.  The charity then sold them and placed the funds in an account that you: A) do not have any ownership of and, B ) that you have a very limited ability to "advise" about how the funds are invested and how the funds are "used" for charitable purposes.

I was having a little trouble following all of the transactions that you are contemplating, but I think there's a much simpler way to record the transactions:

1) Set up a new brokerage account in Quicken.  Assuming that you are using Schwab to hold and administer the DAF - name it the "Schwab Charitable DAF". Check "yes" for "tax deferred" and "no" for show cash in a checking account. The Financial Institution name is "Schwab Charitable Fund" and insert the account number.  In the "Display Options" tab make sure that you check the "Keep this account separate" box.

2) Using the date that you transferred the appreciated securities to Schwab Charitable, enter one or more "Remove - Shares removed" transactions in the brokerage account that you held the shares in making sure to properly identify the specific shares that you transferred.  The In the memo field enter "Transfer to: accountname" using the account you setup in Step 1) above.

3) Next in  the new DAF account enter a "Add - Shares Added transaction" and make sure the proper number and value of the transferred shares are listed and valued correctly (using exactly the same number of shares, price, date acquired and Total cost as they were in the account they were "transferred from).  When you get information on the sale of the shares by Schwab, including the price they received and the total proceeds - enter the appropriate sales transaction(s) in the DAF account.

4) Going forward, depending on whether or not you are able to download transactions from the DAF into Quicken (I know that Fidelity does not offer downloads from their DAF accounts but others may allow it) you should track the value of the fund based on the transaction information you'll get from Schwab Charitable, including donations that you have suggested they make, their fees (if any), and price changes for the funds in the DAF.

So now you are wondering - where is the recording of my charitable deduction that I'll get on my tax return?  And the answer is - it will be reported on the IRS form 8283 and because it is not a cash transaction it will not appear in your tax summary and will not automatically export to TurboTax.  The amount however will be the balance of your new DAF account immediately after Schwab sold the shares you gifted to them.

Hope this helps.

Frankx

[Edited to fix typos, clarify the transaction type used in step 3), and complete description of data moved from one account to the other]

David Boater

Can you provide screen shots?

Frankx

walter bender said:

Two of the four contributions report correctly in the Tax Summary Report but two do not. I have deleted the transactions and reentered them to no avail. 

Hi @walter bender

Was there some difference in the way the initial 2 transactions were recorded (i.e. the ones that are reporting correctly) and the two that do not report properly?  And can you describe for us what actually happens with the 2 transactions that you say are not reporting correctly - do you mean they don't appear at all?

Frankx

NotACPA

Perhaps (just guessing) were the 2 that didn't appear actually transfers from a tax-qualified account, such as an IRA or 401k?

walter bender

Here are screen shots illustrating the problem:

I have double checked the report and it shows reporting dates of 1/1-1/21/20. I have reentered the 2 transactions which do not appear in the tax summary report to no avail. All 4 contributions were done from the same taxable account. Not really sure what is going on here. Of course these kinds of problems make me wonder what other transactions may not be included in the report I use for my tax preparation, my major concern.

walter bender

Sorry the image did not copy so here it is attached. Thanks for your thoughts and suggestions.

UKR

I have no idea why the latest two transactions do not appear in the Tax Summary Report unless there's a Date Range selection issue in the report or somehow a bug crept in with a recent Quicken software update.

My question is: Why do you need to use an account at all, to track money given away to charity? IMHO, it's not necessary. I would have simply recorded an expense transaction in the CMA account, categorized to Schedule A: Cash Charity Contribution.

volvogirl

Why do the top 2 say TRANSFER in the 5th column over and the bottom 2 do not?  What column is that?

Rocket J Squirrel

UKR said:

My question is: Why do you need to use an account at all, to track money given away to charity?

It appears to be a "giving account" aka "donor advised fund." Fidelity has been pushing these lately.

https://www.fidelitycharitable.org/guidance/philanthropy/what-is-a-donor-advised-fund.html

walter bender

Thanks for the comments. As Rocket J Squirrel points out this is a donor advised charitable giving account. Briefly, this means the money is a tax deduction when it goes into the account, not when the money is actually given to the charities. The money is not the donor's any longer but can remain invested by the donor until it is actually given to the individual charities per the donor's instructions. Does make record keeping much simpler as you don't need receipts from individual charities and it makes larger charitable contributions, like an RMD from an IRA easier to manage.

This has been bugging me to no end, OCD, OK. But I finally figured out the problem as illustrated in the attached. Silly me for changing the way I entered the transactions. Should have just let them be downloaded and things would have been fine.

Frankx

Hi again @walter bender,

Glad to see you figured that out!  I suspected it might be a DAF, especially since Fidelity is one of the largest providers.  So I have a couple of followup questions that will test that OCD - 1) do you track the underlying investment(s) in the DAF account in Quicken? 2) have you taken advantage of "appreciated securities" funding the account?

Frankx

walter bender

Yes, I do, of course, track the underlying securities. I'm not just an average OCDer!!

The account is new, just trialing a few features and getting the hang of it. I anticipate utilizing the appreciated securities transfer you mention.

So far, so smooth. Several transfers to different charities and working well on both ends.

Frankx

Yes, they do a good job with these accounts.  Have you been able to download prices of the underlying funds or do you enter them manually?  I haven't figured out a way to download yet (but to be honest, I haven't spent a whole lot of time on it).

walter bender

I talked with them at length, can't download transactions or prices from the separate website that manages the DAF accounts. Say they don't have plans at this time to offer this functionality, as much as we nerds would like it.

Frankx

Thanks for that confirmation.  I'll keep my fingers crossed. 

One last thing, you've probably already done this, but in Quicken I would suggest that the DAF be a "separate account" so it is not included in your net worth.  Here's a snip of how to make it separate.


Frankx

Boatnmaniac

@walter bender - Getting back to your original question:  It appears that the two transactions that do properly show up in the Tax Summary Report were "Other Cash Transaction" transactions and that the two transactions that do not show up in the Tax Summary Report were "Cash Transferred Out of Account" (XOut) transactions.

I suspect that if you change the 11/19 and the 12/12 to "Other Cash Transaction" transactions, they will then show up in the Tax Summary Report.

Let me know if this resolves your issue.

dshovel

Building upon this thread... not sure if Fidelity allows this feature but Schwab does. I can transfer a security directly from a taxable account to the DAF. The IRS allows you to deduct the fair market value of the security at the time of the transfer to the DAF.

I believe it should be tracked as a Schedule A - Cash Charity Contribution.

Frankx

Hi @dshovel,

Fidelity does allow that feature as well as transfers from any other brokerages into their DAF's.  I also know that a number of other brokerage and investment firms have similar programs.

But the contribution actually has to be reported on IRS Form 8283 if the value of the securities is $500.00 or more and this is also not a "Cash Charitable Contribution".

Frankx

dshovel

Thanks @Frankx for clarifying that these contributions are not "Cash Charitable." This is the first year I have utilized a DAF so I have not done my return yet. I'm going to switch to using "Non-Cash Charity Contribution" for now.

Do you have any best practices on how to track the value of the security gifted to the DAF?

I am using "Shares Transferred Between Accounts" transaction since selling the shares in my taxable account will create a capital gain (it doesn't make sense to gift shares at a loss.) I am then creating a cash transfer from my taxable account to the DAF equal to the Fair Market Value (FMV) of the gifted shares that is logged as a "Non-Cash Charity Contribution" by way of the "Transfers In" Tax Schedule feature. I then create an equivalent reverse transaction back to my taxable account so that the cash balances remain correct.

The net result is that I get the FMV of the security gifted to the DAF in my Schedule A report categorized as "Non-Cash Charity Contributions" exactly like I want. I wonder if there is a better way. Happy to learn if any others have solved this in a better way.

q_lurker

Frankx said:

... 
But the contribution actually has to be reported on IRS Form 8283 if the value of the securities is $500.00 or more and this is also not a "Cash Charitable Contribution".

Frankx

While I agree it is not a "Cash Charitable Contribution", If I want Quicken to tell me the value of my contributions year to date or for the year, that is about the only viable option I have seen.  (I suppose I could have a second 'Charitable Contribution (Securities)' category, but that seems unnecessarily redundant to me.)  Yes, it cannot flow directly to tax forms that way, but I choose not to have much data flow along that path anyway.  For years, I have treated security donations to charitable organizations as 'cash' contributions, with no ill effects.

// EDIT:  My use that way doesn't make it right.  It only makes it right for me. // 

Rocket J Squirrel

dshovel said:

I am using "Shares Transferred Between Accounts" transaction since selling the shares in my taxable account will create a capital gain (it doesn't make sense to gift shares at a loss.) I am then creating a cash transfer from my taxable account to the DAF equal to the Fair Market Value (FMV) of the gifted shares that is logged as a "Non-Cash Charity Contribution" by way of the "Transfers In" Tax Schedule feature. I then create an equivalent reverse transaction back to my taxable account so that the cash balances remain correct.

The net result is that I get the FMV of the security gifted to the DAF in my Schedule A report categorized as "Non-Cash Charity Contributions" exactly like I want. I wonder if there is a better way. Happy to learn if any others have solved this in a better way.

I've been pondering how to do this for a couple of hours (while watching college bowl games ) and couldn't come up with anything that didn't involve fake transactions. I think your method is probably as good as Quicken can currently do it.

Frankx

Hi @dshovel,

First off - a couple of observations on your post. 

You are correct that you should not "selI the shares in your taxable account" the reason you shouldn't do that is not only related to tax reasons but the fact is that you did not sell them at all.  You actually gifted them (i.e. transferred the stock in-kind) to a charity.  The charity then sold them and placed the funds in an account that you: A) do not have any ownership of and, B ) that you have a very limited ability to "advise" about how the funds are invested and how the funds are "used" for charitable purposes.

I was having a little trouble following all of the transactions that you are contemplating, but I think there's a much simpler way to record the transactions:

1) Set up a new brokerage account in Quicken.  Assuming that you are using Schwab to hold and administer the DAF - name it the "Schwab Charitable DAF". Check "yes" for "tax deferred" and "no" for show cash in a checking account. The Financial Institution name is "Schwab Charitable Fund" and insert the account number.  In the "Display Options" tab make sure that you check the "Keep this account separate" box.

2) Using the date that you transferred the appreciated securities to Schwab Charitable, enter one or more "Remove - Shares removed" transactions in the brokerage account that you held the shares in making sure to properly identify the specific shares that you transferred.  The In the memo field enter "Transfer to: accountname" using the account you setup in Step 1) above.

3) Next in  the new DAF account enter a "Add - Shares Added transaction" and make sure the proper number and value of the transferred shares are listed and valued correctly (using exactly the same number of shares, price, date acquired and Total cost as they were in the account they were "transferred from).  When you get information on the sale of the shares by Schwab, including the price they received and the total proceeds - enter the appropriate sales transaction(s) in the DAF account.

4) Going forward, depending on whether or not you are able to download transactions from the DAF into Quicken (I know that Fidelity does not offer downloads from their DAF accounts but others may allow it) you should track the value of the fund based on the transaction information you'll get from Schwab Charitable, including donations that you have suggested they make, their fees (if any), and price changes for the funds in the DAF.

So now you are wondering - where is the recording of my charitable deduction that I'll get on my tax return?  And the answer is - it will be reported on the IRS form 8283 and because it is not a cash transaction it will not appear in your tax summary and will not automatically export to TurboTax.  The amount however will be the balance of your new DAF account immediately after Schwab sold the shares you gifted to them.

Hope this helps.

Frankx

[Edited to fix typos, clarify the transaction type used in step 3), and complete description of data moved from one account to the other]

walter bender

Great discussion/advice as to how best to use these accounts. Thank you. Another valuable financial tool to put to good use!

q_lurker

@Frankx

If I can offer edits to your first two steps -- 

1) Set up a new Brokerage account in Quicken.  Assuming that you are using Schwab to hold and administer the DAF - name it the "Schwab Charitable DAF". Create the account with no cash and no securities, and not as a single mutual fund account.  After creating the account, edit the account details.  Check "yes" for "tax deferred" and "no" for show cash in a checking account. The Financial Institution name is "Schwab Charitable Fund" and insert the account number.  In the "Display Options" tab make sure that you check the "Keep this account separate" box.

The bold to emphasize the account type (that is, not a 401k, etc.).  The added underlined sentences to clarify the sequencing of steps.  (If you are keeping the account 'Separate', I am not sure why it needs to be 'tax-deferred', but seems like the right selection.)  

2) Using the date that you transferred the appreciated securities to Schwab Charitable, enter one or more "Shares Transferred between accounts" transactions in the brokerage account that you held the shares in making sure to properly identify the specific shares that you transferred.  The "Transfer to:" account is the account you setup in Step 1) above.

You had cited a Remove Shares transaction.  That transaction does not offer the "Transfer to:" option and would thus also require manual entry of Add Shares transactions into the DAF account.  I don't think that is what you intended.  

More to follow in a separate commentary.

q_lurker

My 'wants' or expectations with regard to charitable gifts of securities.

1. A record within Quicken of gifted value for tax planning purposes - either internal or external to Quicken.  I do not use the tax planner, but the tax planner should be able to pick up the value for those users that do make use of it.  I want to know at any time the value of my total contributions including both gifts of cash and securities for my tax planning external to Quicken.
2. No differential impact of the transactions on Investment performance information.  Gifting of the securities reduces my net worth just as much as gifting cash.  If I sell securities and take out the cash spending it on a vacation, that cash removal is a return from the investments.  Likewise, if I straight take out the securities and give them to a charitable organization, a DAF, a child, or a homeless person on the street, the effect on return and investment performance should be the same.

I recognize some users may also want to track their management of the DAF account as to gifts granted from it to their charities of choice as well as tracking some aspect of the investment growth they get within the DAF.   

@Frankx Step 3 -- In my experience with gifted securities, it is my Financial Institution that defines the value of the gift.  It does not matter what the receiving agency does with the shares, or when they sell them.  Typically, my FI values the gift and reports the value to me for my Form 8283 using the average of that day's high and low trading values (in disagreement with your closing paragraph comment).  That becomes the valuation I want Quicken reporting to me for my tax planning.  Closing this thought, I suspect it is the taxpayer's responsibility to declare the value of the gift and perhaps the IRS would not care about the source of the information provided the valuation was reasonably determined.

I created a 'test' situation to try to find compatibility and differences.  For my test, I bought 10 shares MSFT on 5/31/19 at $124/share and then gifted them on 12/15/20.  I then speculated the DAF sold them on 12/22/20 for $224/share.  Relevant prices for MSFT are:

I did this two different way working with Brokerage F (Frankx's approach) and Brokerage Q (my preferred approach).  For each, I bought MSFT, transferred the shares to the (separate) DAF account, and sold the shares in the DAF account.  For my approach, I supplement those with Add Shares, Sell Shares, and MiscInc transactions    The resulting transactions in all three account are (Investment Transactions Report):

Note that my added transactions (Add Shares and Sell Shares) are using a price for basis and sale of 213.83/share ($2138.30 total) = the average of the hi and lo prices on the date of the transfer.  That is the computation my FI would report to me for my Form 8283 filing.  That is also the value used for the MiscInc expenditure that is categorized as a non-cash charitable contribution.   

What do my three added transactions get me:

Primarily, the entry in the Schedule A report.  My method develops that line item, Frankx's does not.  

The effect on the Investment Performance is arguable.  On the surface, there is a small difference as shown - 37.58 vs 37.37%.  But the reality lies in the 2141.30 value used for the Remove Shares and (for may approach) the Add Shares.  Quicken calculates that value in both cases as shares x closing price for the date (214.13/share).  I would argue the proper value to use is the 213.83/share = 2138.30 total) since that is what was gifted per reports from my FI.  If the closing price for 12/15/20 is edited to 213.83, then the Avg Annual Return number on both brokerage accounts goes to the 37.37% value - agreeing with each other.  The downside of that price edit is that net worth on that specific date can be misstated (if other shares of MSFT are still owned.) 

Summary:  I am still satisfied that my approach gives me what I want.  The method suggested by Frankx is very close and certainly simpler but may not present very clearly the gifted value.  That is what I am after.  As @Rocket J Squirrel observed, I am using fake transactions to get what I want.  I know of no other way.  

I hope this presents useful information for interested readers.  BTW, the only aspect the DAF consideration adds is whether a 'separate' DAF account is established and maintained within Quicken.