Quicken treats remove shares as a return on investment - in my case it's not. How to do it?

jc

The company where I own shares adds shares as a dividend and removes shares to adjust the capital. I found out that removing shares is treated as a return on investment. It is not. How to do it to reflect the actual zero return from remove shares?

q_lurker

 and removes shares to adjust the capital. 

Can you clarify that statement?  Is this a US or foreign company?  Publicly traded?  If so, please identify.

jc

Clarification: Quicken is the one that treats removal of shares as a return. The company is a private company that has several securities and all shares for a given security are valued at $1 each. I get statements where there are added shares, which I enter into Quicken as a reinvested dividend. Then, there is a shares removed statement, which I think is a readjustment of capital. I found out that Quicken treats that as a return of capital, as if I was taking the shares out back to my pocket with a value of $1 each. What is the best way to enter this into Quicken in order to record the transaction and still calculate the correct rate of return?

Tom Young

What's going on here is unclear and what's needed is a better understanding of the economic and tax substance of the actions of getting shares and losing shares.

For example this statement "all shares for a given security are valued at $1 each" is a puzzler.  While shares frequently have a Par Value of some amount, (like $1), when shares are issued, this generally is not  related to the actual value of the shares. Even private companies frequently have to come up with "fair market value" of their stock, particularly if the stock is being used as a form of compensation - which sort of sounds like it might be the case here.  Why, exactly, are you getting shares issued to you?  If you're getting dividends on a grant of restricted shares, for example, the correct (tax) accounting would be to recognize compensation income (this should also be included on your W-2) and the purchase of the stock in the same amount.

The statement "there is a shares removed statement, which I think is a readjustment of capital" in another puzzler as "readjustment of capital" isn't a term that I'm familiar with and what you describe just doesn't seem to have any economic substance: you get a share, something that's of some value to you and should be treated as a form of "income", but then the share is taken away from you?  What's the point?

I'm sure somebody here can come up with the proper accounting if you can provide a clear set of facts behind the transactions.  If these shares are related to some sort of employer stock compensation scheme then I'd think you'd have some paperwork available to you that describes the plan, or somebody at the company explain the plan more fully to you.

q_lurker

Thanks for the response, but I am still not clear what the company is doing 'removing' shares.  Perhaps since they are reporting everything to you at $1/share, they are really just saying your overall value went down and that is how they choose to present that.  

In your two posts, you have mentioned "remove shares" and "return of capital".  Those are two very different things.  

Return of Capital - Some mutual funds, ETFs and securities might distribute 'dividends during the year.  But because of various accounting and tax rules, they cannot consider the payment as a dividend to the shareholders based on income the company earned.  Instead that part of the 'dividend' is considered a "return of capital' that is not taxable.  It is returning to the shareholder part of what the shareholder originally invested in the company.  As such, the shareholders basis in the shares held is reduced since that amount has been returned to the investor.  Such accounting is most common (in my opinion) within the real estate investment world. 

Removed Shares - This is really more of a Quicken thing to fit other real world occurrences.  It fits for situations like moving shares from one account to another.  Transferring shares (gifting) to other people or agencies might be another situation as is the case with corporate mergers where the acquired company basically goes away.

Both of those circumstance in Quicken can associate to returns used to calculate investment performance.  They need to be included in the performance picture.

As Tom has indicated, I think there is something else going on with your circumstances.      

NotACPA

When you receive such "dividend", does the number of shares added exactly match the dollar value of that dividend?  E.G., if the dividend id $95.45, do you receive 95.45 shares?