TREASURY NOTE/BOND PURCHASES

Snakes

Does anyone know how to input a basis (cost) for a treasury bill purchase from a brokerage account?
Doe anyone know how to set up a Direct Treasury account in Quicken and enter Treasury Bond purchases?

Tom Young

Setting up a Treasury Direct Account in Quicken is easy.  You'll create it as a manual (non-downloading) Account, you'll transfer money into that Account when the buy occurs (the Treasury will pull the money from whatever bank account you've specified) then use that money to buy the bond or bonds you've selected.  

You can use the Bonds Bought action:

Where bonds get a little tricky and where Quicken doesn't exactly shine, is in the area of Accrued interest and premium and discount.  You''ll notice the "Accrued int:" box in the above purchase is blank, though I did pay accrued interest when I bought the bond.  The problem with this is that the payment is charged as a debit (negative) interest income and that distorts your income if the next coupon crosses a month or quarter end.

For situations where I paid accrued interest I created a "security" called Accrued Bond Interest (it's basically a receivable) and "bought" this security for the amount I paid then "sold" that same security, for the same price, when I received the bond coupon payment.  The rest of the coupon amount was then recorded as interest income.

Likewise if you buy a bond at a premium or discount in a taxable you must generally amortize that amount over the life of the bond.  I typically didn't split out the premium or discount in the amount I paid for a bond, but would set up an amortization schedule, which affected the bond's basis, for accuracy.

Ps56k2

Also - you need to fudge the numbers for - Number of Bonds, Price, and (Base) - so the Total comes out right....

Tom Young

To @Ps56k2 's point....

In the picture I posted above I bought fifty $1,000 bonds and paid $983.86 for each bond, but entered $98.386 in Quicken's "price" box.

Snakes

TOM
Thanks so much for your help. I solved both problems thanks to you. I have always had problems with Quicken's lack of proper handling of annual amortized muni bonds which makes the capital gains report always inaccurate. It is also inaccurate in that it doesnt include distributed capital gains but that is a different problem. Do you have a work around for the amortizations? Does your amortization schedule technique that you mentioned have to be done annually for each bond or only upon a sale?
Snakes

Tom Young

"Does your amortization schedule technique that you mentioned have to be done annually for each bond or only upon a sale?"

There's are "income tax" issues to consider when deciding if and when you should amortize a premium or discount and while I used to know that stuff I haven't kept up. 

When I did own bonds all the bonds I owned, in after tax accounts, required or allowed for amortization and I did it annually, making the entry on the same date as the last coupon date of the year.  That is, the initial bond basis was the actual amount I paid.  I created an amortization schedule outside of Quicken and made the entry as shown here:

which adjusted the bond's basis accordingly.

Snakes

Tom
Tom
I am reminded of a letter I get whenever I send in a nice check to a charity. I get a nice letter back thanking me profusely for my assistance and included every time is a request for more money!!
You have helped me greatly on two issues so if you want to run for the hills--not a problem.
Your entries on Q on your Ford bond are interesting. Amortization, as I think I understand it, is to decrease the basis of the bond gradually each pay period so when selling it you must report a loss less than the actual loss or more than the actual capital gain. A tax penalty. Thus to keep up with actual bond values in Q, we have to adjust the basis on a periodic basis without interfering with actual income streams. Doing this will make the Quicken capital gain report accurate. Not doing this makes the report inaccurate every time a bond is sold.
I assume the bigger number on your first transaction was for actual income distributed on that date. The second and third at plus and minus $138.42 presumably balance each other out on the Q income ledger so that stays accurate. By categorizing one entry as income and the other as a negative return of capital is fascinating. Does Quicken reduce the basis of the bond when we use the return of capital category? I never dreamed that it would. Did the bond really return capital or are you pretending it did to work around Q's failure to address amortizations? If so, is your third entry off-setting the pretend income loss just to fool the program into a zero net income stream between the two entires while dropping the basis as required by law. What a wonderful work around. Am I reading this correctly?
Thank so much.
Snakes

Tom Young

"I assume the bigger number on your first transaction was for actual income distributed on that date."

Yes.

"The second and third at plus and minus $138.42 presumably balance each other out on the Q income ledger so that stays accurate."

They are created to leave the cash unchanged, and accurate.  One entry affects the income, the other entry affects the bond's basis.

"Does Quicken reduce the basis of the bond when we use the return of capital category?"

It would if that number was positive.  But in this case the RtrnCap entry serves to increase the basis of the bond, because I bought it at a discount.  When the bond matures the basis will equal the bond's notational value, for no gain or loss.

"Am I reading this correctly?"

In this case you're reading it backwards, basis is increasing and interest income is increasing, without affecting cash in the Account, but you've got the gist.

markus1957

FWIW, for Muni bonds, I amortize each bond currently held on December 31 with a Return of Capital transaction transferred back into the same register in the account where the bonds are held. The amount amortized is the amount reported by my brokerage but is basically the difference in cost basis they report in the current/previous year end statements. The ROC transaction transferred into the same account reduces the cost basis on the bond without disturbing the cash balance in the account and uses only 1 transaction, rather than 2.

If a bond is sold, I enter an ROC amortization transaction on the day before the sale to true up the cost basis and get an accurate capital gain value.

q_lurker

I approach this with the same three transactions @Tom Young used.  For an amortized bond premium, positive RtrnCap with negative MiscExp against the _IntIncTaxFree category (muni bonds or _IntInc for taxable bonds) associated with each Interest payment received.  The positive RtrnCAp reduces cost basis.  The negative _IntInc (or _IntIncTaxFree) reduces the accumulated income for the security.  For an amortized discount, the signs reverse.  For that account, my brokerage reports the amortization value with each interest payment received.  Further the year end 1099 form data reports the interest as the gross interest received less the amortization adjustment.  By using the MiscExp transaction to balance the cash, I also get my data consistent with the 1099 interest info.   

For another account where I am not responsible for the tax issues, the broker does not report the amortization until the sale (call or maturity) of the bond.  For that account, I get by with one pair of RtrnCap & MiscExp transactions at the time of the sale.  The single RtrnCapX that @markus1957 cited would also be effective.  So whether it is a regular pattern, annual, or one-time adjustment is up to the user's specific needs.   

Tom Young

@markus1957

"The ROC transaction transferred into the same account reduces the cost basis on the bond without disturbing the cash balance in the account and uses only 1 transaction, rather than 2."

While not a "one-sided entry" from the standpoint of Quicken, your net worth gets changed as the "other side" of the entry,  the accurate accounting entry here is a return of capital entry offset by an adjustment of interest income. 

If you're not required to report that income to any taxing authority that's no big deal, except you are misstating you income in your own reports, but in the situation where the taxing authorities require amortization, those adjustments do affect your reportable income.

Snakes

Thanks to Tom, Marcus and Lurker,
I am blown away by the insightful and beneficial work-arounds you all have learned to master in slightly different ways. I have resolved my difficulties with bond amortization recording thanks to you all. One more issue please.
I have some Airline bonds (United, American, etc,) that are characterized by a factor quantifying a large remaining monetary principal. Returns of capital are paid often. The market values reported monthly by the brokerage firm are very different than the Quicken market values since Q does not have the capability to handle these specific bond types. Have any of you found a way to resolve the market value discrepancies?

markus1957

Tom Young said:

While not a "one-sided entry" from the standpoint of Quicken, your net worth gets changed as the "other side" of the entry,  the accurate accounting entry here is a return of capital entry offset by an adjustment of interest income. 

If you're not required to report that income to any taxing authority that's no big deal, except you are misstating you income in your own reports, but in the situation where the taxing authorities require amortization, those adjustments do affect your reportable income.

Since we're getting into the weeds a bit here, I'll add a couple of comments.

The double entry as shown is not entirely "the accurate accounting entry. Amortization is accrued daily and reported at the end of the tax year, whereas interest from a held bond is discrete and reportable in the year received. To be accurate the entry should be made on the last day of the tax year, normally December 31. Otherwise, you will still be misstating your income because it will be amortized as of the last coupon date(s) rather than end of year.

As I mentioned, I use the single ROCx entry for Munis. I created a spreadsheet that I use for state tax planning to project amortized premium for Muni bonds. Since the premium/discount amortization is a separate line on the tax forms for both taxable and tax-free bonds, if you are going to use Quicken reports to generate values to enter on tax lines, a separate category would be in order.