What Is The Best Approach
I have an investment that pays monthly returns.
It is unclear as to the best way to record the monthly returns because the returns are paid 10 days after the previous month end in which they were earned (i.e., the return for the period December 1, 2023 to December 31 2023 was deposited into my account on January 10, 2024).
The other interesting / important point is that the the return for the period December 1, 2023 to December 31 2023 is treated as taxable income in 2023 (i.e., the time period it was accrued, not paid).
Options:
i) If I backdate the transaction to December 31, 2023 then a) bank statement for December 2023 will not balance and ii) calendar 2023 reports will be correct (i.e., include the correct amounts for tax reporting purposes).
ii) If I record the transaction on January 10, 2024 then a) bank statement for December 2023 will balance and ii) calendar 2023 reports will be incorrect (i.e., exclude the December 23 return which should be included for tax reporting purposes).
iii) I thought about going to the added length of treating the returns as an account payable which would work except I have both business and personal investments like this and there are — to the best of my knowledge — no personal A/R reports. There is also the point that this is a lot of work!
Very interested in how others record or suggest recording such transactions.
Thank you.
Comments
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I use your option 1 backdating the transaction to get it into the right tax year, but that is just me and my preference. As to that making the Bank statement for the prior period incorrect, well maybe sort of. But this is also like the check you write and record on 12/31 that doesn’t clear the bank (show on the statement) until January 11. Does that transaction mean the bank statement for December “will not balance”?
When I do redate the transaction that way, I put a comment in the memo field to that effect as a reminder to myself.
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This sort of timing difference for investments - income paid in year XXXX +1 but attributed to XXXX for tax purposes - isn't all that rare. Dividends declared in the last quarter of the year by regulated investment companies but paid in January are included in the prior year's income tax return and I usually get one or two every year.
I pretty much keep my accounting records on a "cash" basis and I don't sweat these things. My investment Accounts agree to the year end statements, the 1099-DIV has the correct amount for tax purposes, and I always show the reconciliation between the two either on the 1099-DIV itself or worksheets that I attach to my own paper copy of my income tax return.
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@Tom Young appreicate you sharing, very helpful!
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