Best way to handle self-managed property tax escrow

lellis1936
lellis1936 Member ✭✭
edited February 16 in Reports (Windows)
Having paid off my house, I no longer have the advantage of a bank-managed escrow account. This leaves me with two large tax payments separated a few months apart.

The problem with this in Quicken is that it distorts my spending reports. What I'd like is a monthly spending report that includes my accrued property tax liability as if it were being paid on a monthly basis. Instead, I have periods where my spending is low (months that exclude the tax payment) and months that are high (months that include the tax payments).

I've solved this problem *partially*. I've set up a bank account to accrue money for the tax payments and automatically transfer money to that account monthly. But those are recorded in Quicken as transfers so they don't show in the default spending report at all. So I've not solved the reporting problem.

I tried creating a liability account to show the accrued liability, and then including the liability account in the spending report. But here I am back to square one, since the liability account has to be adjusted when the tax payments are made.

Is there a better solution to this problem than what I've tried?

Comments

  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    edited January 16
    "The problem with this in Quicken is that it distorts my spending reports."
    Well, "yes" and "no."  I'm a retired fully qualified CPA and I account for my property taxes on a cash basis.  When I pay the money to the county, that's when it shows up in a Spending report. 
    From a practical standpoint I incur the expense when I pay the check and having that (future) expense sitting in my checking Account allows me to manage my cash so the check doesn't bounce.  To me, knowing how much my property tax is every year and when I have to pay it is more important than seeing a (non-cash) expense in my monthly Spending reports.  I know that's not "GAAP" but I don't care because these are my reports, not reports I'm publishing to the world.
    In California where I live the property tax year is July to June and regular payments are due by December 10th for the first half of the fiscal year and by April 10th for the second half.  So the first payment has a portion that's "in arrears" and a portion that's "prepaid", as does the second payment.  Property taxes for the fiscal year are generally mailed out in October, so if I were to elect to go to "monthly" expense reporting I'd have to estimate the amounts for July, August and September before the correct yearly amount was known to me in October.
    In July, August and September I'd expense a "guesstimate" amount with the offset going to some balance sheet Account.  It really doesn't mater if it's an asset or a liability, I just need some balance sheet Account to post it to.  In October, after I understand what the correct monthly expense is, I'd make a "catch-up" entry to the October expense to make the year to date property tax expense correct, with the offset to the "catch-up" expense going to that same balance sheet Account.  On the 1st of the month in November and December I'd expense the now-known correct monthly property tax expense, offsetting to the balance Sheet Account.
    At this point the payment I make to the county in December will exactly offset the amount in my balance sheet Account, zeroing it out at December 31st.
    In January, February, March and April I'd expense the correct monthly amount, offsetting those to my balance Sheet Account, and my payment to the County, with the offset to that balance sheet Account, would leave that Account on April 31st with the property tax expense for May and June,   The Account would be reduced to $0 with the May and June expense entries.
    So that's the way you do it.
    Since I do "publish" our monthly Spending reports for my wife's consumption, I wouldn't go back and fix the July - September reports, but you could do that instead of making that one "catch up" entry in October.
  • q_lurker
    q_lurker SuperUser ✭✭✭✭✭
    You might look at Savings goals as a tool for setting aside the tax amounts due twice a year.  But that is really just an alternative to your asset or liability account.

    With respect to your spending reports being distorted, you may need to customize those reports as to how transfers are being handled (customize - Advance Tab) in order to get data more meaningful to you.  
  • lellis1936
    lellis1936 Member ✭✭
    Thanks for the responses. They confirm my current impression: that what I'm trying to do is not that straightford, quite a bit of work, confusing to explain to my significant other, and probably not worth the effort.

    I was hoping for a "magic bullet" approach that would alleviate these issues, but it is not surprising to me that one doesn't exist. I'm inclined to strongly consider reverting to a pure cash basis as Tom is using.
  • Tom Young
    Tom Young SuperUser ✭✭✭✭✭
    "Thanks for the responses. They confirm my current impression: that what I'm trying to do is not that straightford, quite a bit of work, confusing to explain to my significant other, and probably not worth the effort."
    Once you know the "correct" monthly expense you can set up a Reminder to post that monthly amount to whatever balance sheet Account you're using.  After that it's simply a matter of directing your periodic payments to that balance sheet Account.  So it's not an inordinate amount of work on your part.  But the approach of "I sent the check out this month so that's why it shows up in this month's Spending report" is a lot simpler to explain.
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