How do I record an addition to cost basis reported on 1099

Member ✭✭✭
edited March 20 in Registers & Transactions (Windows)

I'm using Quicken Classic Premier for Windows version R60.20.

Schwab reported an addition to cost basis under a section titled "Widely Held Fixed Investment Trusts (WHFIT) Reporting." According to Schwab's customer service, there was a discrepancy in the income this security earned and what had been paid out during the year, and the remedy they applied was to increase cost basis. This has no effect on the current tax return, but will affect the reported gain when the security is sold. [The shares were originally purchased in one single lot.]

How should I record this in Quicken? Should it be recorded as a "return of capital"? If so, do I also record a negative dividend for the same amount in order not to add any cash to the account? [By the way, that's how I treat other 1099-reported RoC's in Quicken, and I'm not sure that's the best practice.] I'd rather not edit the original purchase details, but I don't know how else to get my information to match Schwab's. Thank you.

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  • Moderator mod

    Hello @bebob,

    Thanks for reaching out!

    In Quicken, the best way to record an addition to cost basis reported on a 1099 under WHFIT Reporting without affecting your cash balance is to use a Return of Capital (RoC) transaction. Since Schwab is increasing the cost basis due to a discrepancy in income versus payouts, recording it this way aligns with how cost basis adjustments are typically handled.

    To enter this in Quicken:

    1. Open the investment account and go to the Transactions tab.
    2. Enter a Return of Capital (RoC) transaction for the affected security, using the amount reported on your 1099.
    3. This will reduce your cash balance, so to counteract that, enter a separate negative dividend transaction (MiscInc with a negative value) for the same amount to ensure no cash is added to the account.

    This method maintains accurate cost basis tracking while keeping your cash balance unchanged, which seems to match the approach you are already using for other RoC entries. If you’d rather not manually adjust, another option is to see if Quicken’s Adjust Share Balance feature allows for a cost-based correction without altering the original purchase details.

    Let me know if you have any questions or need further clarification!

    -Quicken Jasmine

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  • Quicken Windows Subscription SuperUser ✭✭✭✭✭

    Couple of details — While the 1099 is reporting the data under the label ‘Addition to basis’, the actual value is a negative $0.93. The accounting is reducing the basis by that amount. From the Quicken side, that negative sign makes this a normal Return of Capital transaction and you would enter the amount of the transaction as a positive $0.93. That positive value entry will reduce your basis by that amount.

    As to the balancing Dividend transaction, I would cross-check what Quicken is showing for dividends received versus what the 1099 is showing. In all likelihood, the 1999 is reporting $0.93 less as dividends paid by this security than Quicken shows. That would make the correcting dividend transaction the correct path.

    Hope this helps.

  • Moderator mod

    How do I record an addition to cost basis reported on 1099

    bebob

    Just checking in!

    -Quicken Jasmine

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  • Member ✭✭✭
    edited March 28

    @Quicken Jasmine and @q_lurker

    Thank you for your comments and sorry for my delayed response.

    Although the 1099 shows the amount as a negative (parenthetically), Schwab's cost basis figure is exactly $0.93 more than what I previously had in Quicken, and according to Schwab customer service this is probably a typo on the 1099. And my Quicken record of dividends is equivalent to the 1099's total dividends paid in 2024.

    So I'm using a Return of Capital with a negative amount in order to add to the cost basis. And that reduces the cash, which requires an additional balancing positive dividend transaction. But if I select the same account receiving the addition to cost basis as the "transfer account," the cash amount is unaffected so I don't need to add a balancing dividend transaction. Is there any disadvantage or downside to using the RtrnCapX transaction whenever I want to reduce (or increase) cost basis due to a Return of Capital (or "addition to cost basis") reported on a 1099? Unless I'm actually receiving a cash payout for a Return of Capital (or withdrawing cash for an Addition to Cost Basis), it seems like this method is more efficient.

    Thanks again!

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  • Quicken Windows Subscription SuperUser ✭✭✭✭✭

    I don’t know of a particular downside to the RtrnCapX option especially in comparison to a second cash transaction to account for the cash component. At $0.93, any consequence could be hard to spot.

    I will point out that RtrnCap transactions in Quicken do not always spread as needed to multiple lot holdings. Again, the size of this adjustment makes that concern pretty inconsequential.

  • Member ✭✭✭

    Thank you @q_lurker.

    In what cases do you recommend against using the Return of Capital transaction in Quicken? And what do you suggest instead? It seems like the RoC transaction should be perfectly fine for one lot of shares. But if dividends have been reinvested then I have no idea how the RoC transaction would accurately spread the reduction in cost basis.

    Also, are there cases where you would recommend against using the RtrnCapX transaction to avoid the otherwise necessary offsetting dividend transaction to keep cash balance correct? If the RoC reported on a 1099 is larger than a particular $ amount, is it better to record an RoC with the additional offsetting dividend transaction?

    Thanks again.

  • Quicken Windows Subscription SuperUser ✭✭✭✭✭

    In what cases do you recommend against using the Return of Capital transaction in Quicken?

    (IIRC) Quicken allocates the RtrnCap amount to multiple lots based on share quantity of each lot. If one lot has four shares and a second lot has six shares, the amount gets allocated 40% / 60%. There are cases where the allocation should be based on basis of the lot, not share quantity. Again IIRC, Corporate spinoffs are one such situation, so I am cautious in those multi-lot cases. Any situation where the allocation to lots is not share based should be handled carefully. But even in those cases, the investor needs to weigh in with their needs. That is, maybe the per-lot basis is not so critical.

    In cases where RtrnCap does not work adequately for me, I would likely go with the Remove Shares / Add Shares approach.

    With a history of reinvested dividends, the standard computation is is still the same: Lot Basis adjustment = LotShares / TotalShares * Amount. That computation just gets applied more times. It is possible that rounding to a penny so many times might lead to an accumulated roundoff error, but thoat would still be in the pennies, commonly.

    Also, are there cases where you would recommend against using the RtrnCapX transaction to avoid the otherwise necessary offsetting dividend transaction to keep cash balance correct? 

    Reversing the question, I would use the RtrnCap / Div pairing for the adjustment any time I know that was the real world case. When 1099s come in, I see SecurityX reporting Div = $98 and a non-div distribution of $2 but my Quicken records at that point are $100 received. I'd use the RtrnCap / Div pairing for the correction because I tend to be OCD about having those detail accurate. That is pretty much regardless of the magnitudes.

    Still with the OCD mindset, I tend to avoid transactions where a ___X transfer is involved back into the same account. I see that type of self-referencing transaction primarily for Opening Balance entries. The character of such entries is that cash come from or goes into thin air. It is otherwise unaccounted for and that challenges my sensibilities of good record-keeping. Thus in such cases (like your $0.93), I might lean to a second transaction so I could clarify with a memo entry. I can't tie that choice specifically to a dollar amount. More likely as a percent of basis maybe, or a combination of amount and percent? Still a case-by-case decision and I can't swear I am always consistent. Other than the dividend adjustment cases discussed in the prior paragraph, such adjustments are very rare.

    Please bear in mind, these are one person's opinions. Right for me; not necessarily right for you or anyone else. I appreciate the depth and direction of your questions and hope these answers are helpful for you making your choices.

  • Member ✭✭✭

    @q_lurker, thank you very much for your reply. As you say, your opinions are just that, but your reasoning is sound, so I won't be utilizing the RtrnCapX transaction for real-world or 1099-reported Returns of Capital.

    I don't entirely follow the calculation of cost basis changes to multiple lots, but fortunately I haven't had to sort that scenario out yet. I will review your notes on that in the future.

    Thank you again for your detailed replies. If you happen to know of any other particularly helpful community posts addressing cost basis corrections, I would appreciate any links you can share. More complicated cost basis problems surely await me, as part of my portfolio goes back to the 1970s.

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