Marking investment transactions as the parent "Transfer" category and not a subcategory?

hbwilliams22

I am struggling with investment transactions in Quicken. Let's say I invest in an LLC whose account is not recorded in Quicken and thus not a subcategory of Transfer type. Can I mark this transaction as simply "Transfer" or will it not record properly?

Generally speaking, how should I categorize investments that do not have accounts in Quicken?

hbwilliams22

Similarly, I am paid annual distributions from these LLC investments. For now, I have the LLC investments as separate Income subcategories. Is this advised?

jacobs

If you use the Category of Transfer, Quicken treats it exactly as you described in your first post: money going to or coming from some unknown source outside what you track in Quicken. Transfer is a special category because it won't show up in reports as income or expense; it will be invisible in reports unless you use the Advanced setting to "include all transfers." So if you're satisfied with not having the LLC in Quicken, using Category=Transfer is the way to go.

For your second question, I'm not clear if you have one category for your distributions, or if you have separate categories for each of the LLCs? You can set it up however is useful to you.

I don't know how many LLC investments you have, but I'm wondering if it would be easier to have them as manual-entry accounts in Quicken. This way, your transfers to or from each LLC would be a transfer within Quicken's accounts, and dividend income can be entered as a standard investment Type=Dividend transaction, which will automatically appear correctly in the tax report. And, of course, then the value of these LLC investments would be included in your net worth in Quicken. 

hbwilliams22

@jacobs I think the plan of manual-entry accounts makes the most sense. I have probably 3 LLC investments. Given their nature, would they be 'Brokerage' accounts? And if so, let's assume this scenario: I invest $10,000 from Primary Checking to 'LLC #1' Brokerage account, labeling this transaction as a 'Transfer'. When the LLC returns a $2,500 distribution later that year, I would mark this transaction as `Income/subcategory LLC #1`, or something similar? So I would need to create an Income sub-category supporting this LLC investment.

jacobs

Yes, you could set them up as three brokerage accounts. But it might be better to set them up as one Brokerage account (say "LLC Investments") and treat each separate LLC as a "Security" in that single account. 

hbwilliams22 said:

let's assume this scenario: I invest $10,000 from Primary Checking to 'LLC #1' Brokerage account, labeling this transaction as a 'Transfer'.

The transfer transaction in your checking account would use the Category "Transfer:[LLC #1]" rather than just the generic "Transfer".  When the transfer includes the destination account, it is called a linked transfer, because the transaction shows up in both accounts.

hbwilliams22 said:

When the LLC returns a $2,500 distribution later that year, I would mark this transaction as `Income/subcategory LLC #1`, or something similar? So I would need to create an Income sub-category supporting this LLC investment.

No, in the investment account you would record a Dividend Transaction, which looks like this:





With investment accounts you don't create your own income categories; Quicken categorizes them for reports. After you save this transaction, it will show a $2,500 cash balance in your brokerage account. Assuming this money, in the real world, shows up in your checking account, then you'd enter a second transaction in Quicken to transfer the money out of the brokerage account and into the checking account, like this:



Not that transfers and any other banking-type transactions in an investment account must use Type=Payment/Deposit to reveal the correct fields for the transaction.

The result of the Dividend transaction and the Transfer transaction will look like this in your investment account:



So your cash balance is back to zero, the dividend income shows in your checking account, and any report for income will show this dividend income. Here's a transaction report for this account:



And here's the dividend income showing up in the Tax Schedule report:




I hope that helps. Let me know if anything isn't clear. 

hbwilliams22

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hbwilliams22

@jacobs will digest this more thoroughly and potentially come back with additional questions but out of the gate: how do I set up multiple securities under the parent LLC Investments Brokerage account?

Also, when I transfer money from Primary Checking to the LLC Brokerage account (the investment), why does it show up as positive (+) and not negative (-)? In the below screenshot, I've made a $10,000 investment and will be hoping to recoup that over time. Is it standard for the investment to be considered a positive as are the distributions/dividends?

jacobs

You can create securities in the Window > Securities window, or you can create them by just entering them in an investment transaction. Quicken will want you it can't obtain security prices for the unknown ticket symbol, but that's expected with a private security like this. Creating the security in the Security window allows you to assign it to an asset class, such as Small Cap Stock, so your holdings are properly categorized in the Dashboard and asset allocation reports. 



After creating each security, you will need to establish your holding in the security, using an Add Shares transaction. If you have actual shares and a share price, you can enter that. If there's no such thing as a share price (e.g. you are a 2% partner of the LLC), you can enter 1 share or 100 shares or whatever seems appropriate, using the total price of your investment. 

hbwilliams22

@jacobs thank you. Generally speaking, is all of the above helpful for tax purposes? For the most part, I am leaning on Quicken for transaction monitoring and budgeting and not necessarily for tax services. Just wondering if I need to be going through all of this architecture given my needs.

jacobs

Many people use some aspects of Quicken reports for their taxes. For investments, I personally just use the 1099s from my brokerages when preparing taxes, not the data from Quicken. But I like having my investment information in Quicken so I have a reasonably accurate picture of my net worth, my income, my taxes, etc.

From your description of your investments, it sounds simple enough to capture in Quicken: create one brokerage account, create three securities, and enter three Add Shares transactions to reflect your investments. Then, the only work you'll be doing is entering your annual dividend payments ad any additional investments you may make. If you're only entering a handful of manual transactions each year, then it's really not much work.

But Quicken is flexible, and everyone uses it differently. So if you decide to ignore the LLC investments in Quicken, you can. 

hbwilliams22

@jacobs OK, I am planning to use it in the same way as you. My next question is regarding cash and where it actually lives vs. where it is transferred in Quicken. In my $10,000 investment example above, the dividend distributions go into my Primary Checking account (where it stays), yet I need to transfer the distribution to the LLC account for it to make sense of the numbers. When I do this, it will incorrectly deduct cash from my Primary Checking, pushing it out of sync with the actual bank balance.

jacobs

You record the Dividend transaction in the LLC account, which creates the income. Then you transfer the cash from the LLC account to your checking account, to reflect the funds flow. 

hbwilliams22

So is the dividend transaction manually added to the LLC account considering the actual distribution was wired to my Primary Checking or am I transferring the deposit from Primary to LLC and then recording the Dividend before transferring it back to Primary? And what about the initial $10,000 investment? Let's say I wrote a $10,000 check to LLC owner. Once the check is cashed, is the transaction marked as a transfer to the LLC brokerage account giving that account a +$10,000 balance?

jacobs

Yes, as I showed in the screen shot above, the dividend transaction takes place in the investment account, not the checking account. This mirrors what happened in the real world: your investment issued you a dividend; you specified that it should be deposited in your checking account. In Quicken, the dividend gets recorded in the investment account, because investment accounts handle tracking and categorizing everything related to investments. The dividend creates a cash balance in your investment account. So you then enter the transfer transaction to move that cash to your checking account, bringing the cash balance in the investment account back to zero. Please review my screen shots in the 5th post in this thread; I showed how to create a Dividend transaction and a Transfer transaction.

For the initial investment, it depends on what you already have entered in Quicken, and perhaps what the timeframe was. If the $10,000 check exists in your checking account using some category, then I would  edit that transaction by changing the category to "Transfer:[LLC Investments]". This will create the "deposit" into the investment account, and will now show a positive cash balance. You then enter a Buy transaction in the investment account to reflect your purchase of the LLC security. Again, you will have to decide how to characterize this holding; unless there are actual shares with a share price, you may want to record it as 1 share for the total $10,000 cost of your investment.

Alternatively, if the original transaction took place in a prior year, or there were multiple investment purchases, and you don't want to mess with the existing transaction(s) in your checking account, you can just reflect the share(s) of the security using an Add Shares transaction, as I illustrated in a screen shot above. Add Shares makes shares appear in an account "out of thin air" without using any cash; a Buy transaction makes shares appear using cash in the investment account. 

hbwilliams22

>Yes, as I showed in the screen shot above, the dividend transaction takes place in the investment account, not the checking account. This mirrors what happened in the real world: your investment issued you a dividend; you specified that it should be deposited in your checking account. In Quicken, the dividend gets recorded in the investment account, because investment accounts handle tracking and categorizing everything related to investments. The dividend creates a cash balance in your investment account. So you then enter the transfer transaction to move that cash to your checking account, bringing the cash balance in the investment account back to zero. Please review my screen shots in the 5th post in this thread; I showed how to create a Dividend transaction and a Transfer transaction.

OK I am back with a follow-up question. If the $2,500 dividend payment was deposited into my Checking account and I also manually add the same $2,500 divided distribution in my Investment account before transferring it back to my Checking, wouldn't that result in +$5,000 to my checking, doubling the distribution amount?

hbwilliams22

> @jacobs said:
> Yes, as I showed in the screen shot above, the dividend transaction takes place in the investment account, not the checking account. This mirrors what happened in the real world: your investment issued you a dividend; you specified that it should be deposited in your checking account. In Quicken, the dividend gets recorded in the investment account, because investment accounts handle tracking and categorizing everything related to investments. The dividend creates a cash balance in your investment account. So you then enter the transfer transaction to move that cash to your checking account, bringing the cash balance in the investment account back to zero. Please review my screen shots in the 5th post in this thread; I showed how to create a Dividend transaction and a Transfer transaction.
>

OK I am back with a follow-up question. If the $2,500 distribution was deposited to my Checking account, and I also manually add the $2,500 distribution to Investment account before transferring it back to Checking, won't that result in a +$5,000 Checking balance for the $2,500 distribution?

jacobs

Sorry, I’m not following your question. If you manually enter the dividend, it will create a $2,500 cash balance in the investment account. If you manually enter a transfer transaction from the investment account to the checking account, the investment account will have a cash balance of zero, and the checking account will go up by $2,500. If you download your checking account transactions, then the downloaded $2,500 deposit May auto-merge with your manual transfer deposit, or if not, you can drag one over the other for Quicken to merge them. If Quicken won’t merge them because of the transfer, just delete the downloaded deposit and leave the manually-entered transfer deposit. Either way, you’re left with a $2,500 increase in checking.

hbwilliams22

Ok here are the actual distributions deposited into my Checking account. My Investment LLC account only lives in Quicken and is not an actual checking account so it cannot receive deposits. Do I manually Transfer all of these deposits to Investment LLC, then add equivalent Dividend Incomes, before manually transferring the income back to my Checking?

hbwilliams22

@jacobs I sold company stock and the proceeds were deposited in a Quicken-linked checking account. Do I need to transfer this deposit transaction from Checking to the custom Brokerage account that was created for these shares and then "Sell" shares to meet the deposit amount? When I do this, the cash balance of the custom Brokerage account zeroes out but shouldn't I have an equivalent cash balance that I then transfer back to the Checking account where it came from (and where it actually lives)?

lhossus

hbwilliams22 said:

Ok here are the actual distributions deposited into my Checking account. My Investment LLC account only lives in Quicken and is not an actual checking account so it cannot receive deposits. 

The Investment LLC account in Quicken mirrors a real world investment account set up for you by the LLC. It can receive deposits of Dividends.

a) the LLC itself is holding your investments in that real world investment account
b) the LLC is crediting dividends to your account.
c) cash from the dividends is subsequently transferred from the investment account to the checking account of your choice.

hbwilliams22 said:

...
Do I manually Transfer all of these deposits to Investment LLC, then add equivalent Dividend Incomes, before manually transferring the income back to my Checking?

The Quicken investment account parallels the real world LLC account.

In particular, for Dividends, to show what happened in the real world, you do the following in Quicken:

1) Enter a Dividend transaction in the Quicken Investment LLC account.
2) Enter a Payment/Deposit transaction in the Quicken Investment LLC account to transfer the Dividend cash to your checking account.
OR
If your checking account is getting the dividends downloaded to it automatically, then you can simply edit the downloaded transaction to indicate that it is a transfer of cash from the Investment LLC account. Do this by entering the LLC account name in the Category field with square brackets around the name (e. g. [Investment LLC])

@jacobs posted a very nice detailed exposition of the steps on Nov 28th showing what this looks like, with screenshots. 

hbwilliams22

Thank you for your reply. Now that I am thinking about it, I think an Asset account might serve my real estate LP investments better than a Brokerage account as I am not buying or selling "shares". How might I use an Asset account for investments that consist of one lump investment transaction and 10+ distribution transactions?

lhossus

hbwilliams22 said:

... How might I use an Asset account for investments that consist of one lump investment transaction and 10+ distribution transactions?

I may not be the best person to answer this, but maybe others will have suggestions.

The answer really depends on what information you wish to track in Quicken:

If all you want to track is
  a) Initial investment cash leaving your checking account - then just Transfer it out of the checking account as Jacob described in his first post on Nov 28th.
  b) Dividend distributions being deposited in your checking account - then just record the dividend deposits in the checking account.
Done. No Asset account required. No record of the Asset - hence no record of the investment value in your Net Worth. No record of Tax consequences.

But since you said Asset account, I will assume you want to track the Investment value over time:
  a) Create an Asset account.
  b) Transfer the initial investment cash from checking account to Asset account.

Now the question is: what happens when a dividend is distributed? Either
  a) The dividend reduces the value of the initial investment (Return of Capital) - then transfer the amount of the dividend from the Asset account to the checking account. No tax consequence here (I assume).
  b) The dividend is from earnings on the investment - then just deposit the dividend in the checking account. Categorize it as Dividend Income. No change in the Asset account.

And, what happens when you close out the investment?
  Likely, any remaining value of the initial investment shows up in the checking account - In Quicken, create a Transfer transaction from Asset account to Checking account.
  There may be additional earnings - just deposit those earnings in Checking account, categorized as Dividend Income.

I hope this outline helps.

Remember, Quicken just mirrors what happens in the real world. So to use Quicken effectively one must correctly reflect what happens with this investment in the real world by creating the appropriate transaction entries.

And, disclaimer: I am neither a tax professional nor a LLC / LP investment professional.
  

hbwilliams22

This does help @lhossus. Regarding the below, this would be a standard "Transfer" with no destination, correct?

> @lhossus said:
>   a) Initial investment cash leaving your checking account - then just Transfer it out of the checking account as Jacob described in his first post on Nov 28th.

lhossus

hbwilliams22 said:

This does help @lhossus. Regarding the below, this would be a standard "Transfer" with no destination, correct?

> @lhossus said:
>   a) Initial investment cash leaving your checking account - then just Transfer it out of the checking account as Jacob described in his first post on Nov 28th.

Yes.

Enter a transaction with the category of "Transfer" and nothing else (no Colon, no square brackets, no account name). You can double check that the entry is correct by verifying that the Transfer column is empty (or by looking at the Transfer value by using the Inspector on the transaction).
This will reduce the amount of funds in the source checking account without marking it as an expense and without placing the funds in another account.

But remember: this is what you would do (only) if you are not going to track the existence of this investment. Quicken will not be able to include this asset in its net worth reporting.