Entering Municipal Bonds

Discussion in 'Quicken' started by Barbara Lindholm, Jan 29, 2006.

  1. I am going to attempt to start a file and enter my parents large portfolio
    of municipal bonds into Quicken. They have had some for years. I will not be
    able to track the whole history; just from the date I enter them. I imagine
    that I will first enter each one in the security list, right? Then when I
    enter it into their account, I would have to use the "Add shares" option as
    I don't have a cash entry to start from. I have all the confirmation
    receipts they received from the brokerage firm. My question is, when accrued
    interest shows on the buy confirmation, how do I account for it? Do I just
    include it as part of the fee, which then changes the price per share? e.g.
    One bond purchased was 5000 sh, price 96.849, Principal amt $4842.45, fee of
    2.35, Accrued Interest 87.05, and net amount 4,931.85. When I entered this
    bond into their account (using the "add shares" option), there is no place
    in the entry information to put this accrued interest amt. so I wasn't sure
    how to incorporate it into the purchase. If I try to put it in as a
    miscellaneous expense separately, then it would give them a negative cash
    balance and I want to avoid this. I would appreciate any help in the proper
    way to add these bonds when I am not going back to a beginning history.
    Thanks
     
    Barbara Lindholm, Jan 29, 2006
    #1
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  2. Barbara Lindholm

    Route 101© Guest

    Good for them that they kept all the original confirms; surprising how many
    people do not have them when tax time comes. I don't see why would you want
    to account for original accrued tax-exempt interest paid in this situation.
    It already was returned as part of their first tax-exempt interest payment.
    From your post it appears that this is true for all their munis. I'm
    assuming here that they are citizens/residents in the U.S; if not, ignore
    the last paragraph.

    In your example, I'd enter 50 for the number of bonds, $4,844.80 for the
    total cost (principal + SEC fee), and Quicken will show the price as 96.896
    (actual cost basis), and forget about accrued tax-exempt interest paid and
    returned.

    When I buy more municipal bonds, I use two separate transactions for each, a
    Buy for the purchase and a Miscellaneous Expense for any accrued tax-exempt
    interest paid. I do not put accrued tax-exempt interest in the Buy
    transaction, because Quicken treats it as taxable interest. I use one of two
    Quicken income (not expense) categories I set up (with appropriate tax
    schedule) for the municipal bond interest I received or paid: Federal Tax
    Exempt (for out-of-state bonds); or Totally Exempt (for in-state, and U.S.
    territories and possessions, e.g. Puerto Rico, Guam, and Virgin Islands).
    This matches the way new muni purchases download from my brokerage accounts,
    except that I have to change the MiscExp category. When I receive
    semi-annual muni interest payments, I assign one of these categories to
    them. I also set up my Schedule B reports to include these categories
    separately (to be added to Form 1040 line 8b).

    ...............................
    Hell was full, so I came back!

    **This message was scanned before sending by McAfee Antivirus.**

    "Barbara Lindholm" <> wrote in message
    news:...
    >I am going to attempt to start a file and enter my parents large portfolio
    >of municipal bonds into Quicken. They have had some for years. I will not
    >be able to track the whole history; just from the date I enter them. I
    >imagine that I will first enter each one in the security list, right? Then
    >when I enter it into their account, I would have to use the "Add shares"
    >option as I don't have a cash entry to start from. I have all the
    >confirmation receipts they received from the brokerage firm. My question
    >is, when accrued interest shows on the buy confirmation, how do I account
    >for it? Do I just include it as part of the fee, which then changes the
    >price per share? e.g. One bond purchased was 5000 sh, price 96.849,
    >Principal amt $4842.45, fee of 2.35, Accrued Interest 87.05, and net amount
    >4,931.85. When I entered this bond into their account (using the "add
    >shares" option), there is no place in the entry information to put this
    >accrued interest amt. so I wasn't sure how to incorporate it into the
    >purchase. If I try to put it in as a miscellaneous expense separately, then
    >it would give them a negative cash balance and I want to avoid this. I
    >would appreciate any help in the proper way to add these bonds when I am
    >not going back to a beginning history. Thanks
    >
    >
     
    Route 101©, Jan 29, 2006
    #2
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  3. Barbara Lindholm

    John Pollard Guest

    Route 101© wrote:

    < snip >

    > When I buy more municipal bonds, I use two separate
    > transactions for
    > each, a Buy for the purchase and a Miscellaneous Expense for
    > any
    > accrued tax-exempt interest paid. I do not put accrued
    > tax-exempt
    > interest in the Buy transaction, because Quicken treats it as
    > taxable
    > interest.


    I'm not sure what version of Quicken you are using, but in
    Q2005, if I enter accrued interest in a Bonds Bought
    transaction: I get a separate MiscExp transaction categorized to
    "_Accrued Int". But this is not the end of the
    "categorization"; if the bond bought was a "tax free" bond, then
    the "_Accrued Int" is further categorized to "_IntIncTaxFree"
    for Quicken tax reporting.

    > I use one of two Quicken income (not expense) categories I
    > set up (with appropriate tax schedule) for the municipal bond
    > interest I received or paid: Federal Tax Exempt (for
    > out-of-state
    > bonds); or Totally Exempt (for in-state, and U.S. territories
    > and
    > possessions, e.g. Puerto Rico, Guam, and Virgin Islands). This
    > matches the way new muni purchases download from my brokerage
    > accounts, except that I have to change the MiscExp category.
    > When I
    > receive semi-annual muni interest payments, I assign one of
    > these
    > categories to them. I also set up my Schedule B reports to
    > include
    > these categories separately (to be added to Form 1040 line
    > 8b).



    --
    John Pollard
    First initial underscore Last name at mchsi dot com
    Please reply to newsgroup
     
    John Pollard, Jan 29, 2006
    #3
  4. Barbara Lindholm

    Route 101© Guest

    QH&B 2006. Was not aware that somewhere Quicken further split the _Accrued
    Int field into taxable and tax-free, likely based on the security
    description properties. However, because I buy some out-of-state bonds, that
    generate state taxable interest, I still need further categorization for tax
    purposes. I suppose I can recategorize that MiscExp transaction afterwards.
    I'll try it if/when I find another muni worth buying. Thanks.
    ...............................
    The More Things Change, the More They Stay Insane

    **This message was scanned before sending by McAfee Antivirus.**

    "John Pollard" <> wrote in message
    news:jY6Df.762175$xm3.495178@attbi_s21...
    > Route 101© wrote:
    >
    > < snip >
    >
    > I'm not sure what version of Quicken you are using, but in Q2005, if I
    > enter accrued interest in a Bonds Bought transaction: I get a separate
    > MiscExp transaction categorized to "_Accrued Int". But this is not the
    > end of the "categorization"; if the bond bought was a "tax free" bond,
    > then the "_Accrued Int" is further categorized to "_IntIncTaxFree" for
    > Quicken tax reporting.
    >


    > --
    > John Pollard
    > First initial underscore Last name at mchsi dot com
    > Please reply to newsgroup
    >
     
    Route 101©, Jan 29, 2006
    #4
  5. Thanks to all of you for your help. I should have mentioned that I am using
    2004 vers. I think I may upgrade this year to 2006...sounds like they added
    some clarification to municipal bond purchases. To John Pollard, I can't
    enter the bonds as "buy bonds" yet because I am just entering everything for
    the first time and therefore have no cash to draw from for all the entries,
    so with the "Add Shares", there is no place to enter the accrued interest.
    I guess I really don't have to worry about the interest being that they are
    all muni bonds but just wanted to do things as accurately as possible.
    Route 101's suggestion makes sense to me, so I will just ignore the accrued
    interest on those bonds already purcased. I am not real familiar with
    municipal bonds. Once everything is in, it should be accurate from that
    point on.



    "Route 101©" <> wrote in message
    news:43dd0ba8$0$2928$...
    > QH&B 2006. Was not aware that somewhere Quicken further split the _Accrued
    > Int field into taxable and tax-free, likely based on the security
    > description properties. However, because I buy some out-of-state bonds,
    > that generate state taxable interest, I still need further categorization
    > for tax purposes. I suppose I can recategorize that MiscExp transaction
    > afterwards. I'll try it if/when I find another muni worth buying. Thanks.
    > ..............................
    > The More Things Change, the More They Stay Insane
    >
    > **This message was scanned before sending by McAfee Antivirus.**
    >
    > "John Pollard" <> wrote in message
    > news:jY6Df.762175$xm3.495178@attbi_s21...
    >> Route 101© wrote:
    >>
    >> < snip >
    >>
    >> I'm not sure what version of Quicken you are using, but in Q2005, if I
    >> enter accrued interest in a Bonds Bought transaction: I get a separate
    >> MiscExp transaction categorized to "_Accrued Int". But this is not the
    >> end of the "categorization"; if the bond bought was a "tax free" bond,
    >> then the "_Accrued Int" is further categorized to "_IntIncTaxFree" for
    >> Quicken tax reporting.
    >>

    >
    >> --
    >> John Pollard
    >> First initial underscore Last name at mchsi dot com
    >> Please reply to newsgroup
    >>

    >
    >
     
    Barbara Lindholm, Jan 29, 2006
    #5
  6. Barbara Lindholm

    John Pollard Guest

    Barbara Lindholm wrote:
    > Thanks to all of you for your help. I should have mentioned
    > that I
    > am using 2004 vers. I think I may upgrade this year to
    > 2006...sounds
    > like they added some clarification to municipal bond
    > purchases. To
    > John Pollard, I can't enter the bonds as "buy bonds" yet
    > because I am
    > just entering everything for the first time and therefore have
    > no
    > cash to draw from for all the entries, so with the "Add
    > Shares",
    > there is no place to enter the accrued interest. I guess I
    > really
    > don't have to worry about the interest being that they are all
    > muni
    > bonds but just wanted to do things as accurately as possible.
    > Route
    > 101's suggestion makes sense to me, so I will just ignore the
    > accrued
    > interest on those bonds already purcased. I am not real
    > familiar with
    > municipal bonds. Once everything is in, it should be accurate
    > from
    > that point on.


    I can't test this because I don't have Q2004, but you can test
    it easily: identify your muni bond securities as security
    "Type", "Bond", and check the "Tax Free" box (you probably have
    to do both after you have added the security to Quicken, I don't
    think those options are in the new security dialog). Then
    record a MiscExp transaction for a muni bond as "_Accrued
    Interest" (I assume Q2004 uses that category). Then run a Tax
    Summary (or Tax Schedule) report (with investment accounts
    included) and see if the accrued interest appears under the
    category "_IntIncTaxFree" (heading) while the actual transaction
    category remains "_Accrued Interest.

    --
    John Pollard
    First initial underscore Last name at mchsi dot com
    Please reply to newsgroup
     
    John Pollard, Jan 29, 2006
    #6
  7. Barbara Lindholm

    John Pollard Guest

    Route 101© wrote:
    > QH&B 2006. Was not aware that somewhere Quicken further split
    > the
    > _Accrued Int field into taxable and tax-free,


    > likely based on the
    > security description properties.


    Exactly: Security Type: Bond; and check the Tax Free box.

    > However, because I buy some
    > out-of-state bonds, that generate state taxable interest, I
    > still
    > need further categorization for tax purposes. I suppose I can
    > recategorize that MiscExp transaction afterwards. I'll try it
    > if/when
    > I find another muni worth buying.


    --
    John Pollard
    First initial underscore Last name at mchsi dot com
    Please reply to newsgroup
     
    John Pollard, Jan 29, 2006
    #7
  8. Barbara Lindholm

    R. C. White Guest

    Hi, Barbara.

    Most of your questions have already been tackled by the other posters. I'd
    like to focus on just the accrued interest purchased.

    Except for bonds purchased within the past year, that purchased interest
    should have been forgotten by now. In your example, the $87.05 that your
    parents paid out for accrued interest would have been returned to them as a
    part of their first interest income check. On a typical bond that pays
    interest semi-annually, the $87.05 would have reduced their income for the
    year of purchase or the following year, depending on the timing of their
    purchase.

    Accrued interest purchased is not an expense, exactly; it is a reduction of
    income. If the first interest income is in the same year as the purchase,
    it is obvious that only the net amount is income. If that first interest is
    not received until the following year, the proper treatment is the same, but
    it is not so obvious.

    Suppose you buy a $5,000 bond paying 6%, with $150 checks paid semi-annually
    on March 1 and September 1. If you buy the bond on July 1, you will have to
    also buy the $100 interest accrued since the last March 1. On September 1,
    you will receive $150, representing the $100 you bought plus $50 accrued
    from July 1 to September 1. Your income for that year will be only $50,
    although you actually received $150.

    If you bought that same bond on November 1, 2005, you would have to pay $50
    for the interest accrued since September 1. You will not receive any
    interest check until March 1, 2006, when you will get $150, representing the
    $50 you paid plus $100 accrued since your purchase. For 2005, you will
    report no income. You also will not be allowed to deduct the $50 you paid
    for the accrued interest you bought. You must remember that Accrued
    Interest Purchased and carry it over to 2006, when you receive the first
    interest income, which includes what you purchased.

    For current bond purchases, you can handle accrued interest purchases in the
    theoretically correct way, or in the more practical way, especially if there
    are only a few of them. The correct way is to use an Asset Account called
    Accrued Interest Receivable. When you buy the bond, put the principal in
    Bonds and the purchased interest in this separate account. When you receive
    the first interest check, reduce this purchased interest account to zero and
    put only the excess in the Interest Income Category. With this method, your
    Income Statement will always show only the interest you've earned, not what
    you've purchased, and your Balance Sheet will show the interest you've
    purchased as a part of your net worth.

    The more practical handling, for most people, is to just put the purchased
    interest into the Interest Income Category as a debit (a "negative income"
    amount). When the first interest check arrives, put it into this category
    as usual. The plus and minus amounts will result in your correct net income
    for the year. But if your year ends before the first interest check is
    received, then you must remember to NOT deduct purchased interest for THIS
    bond this year. You'll have to remember to deduct it from next year's
    interest receipts. And you can't use interest purchased with Bond A to
    offset interest received on Bond B.

    In your parents' situation, most of those bonds were purchased more than a
    year ago. The first interest check on each of them was received - and
    reported - in prior years. For those bonds, the interest purchased is no
    longer relevant and need not be recorded at all now. Even for bonds
    purchased last year, if the first interest receipt was in the prior year,
    the purchased interest is not relevant now. But for bonds on which the
    first interest has not been received, you should record the purchased
    interest as either Accrued Interest Receivable or as a minus in income, to
    offset that first interest check when it is received.

    Since these are all municipal bonds and, presumably, the interest has always
    been excludable from your parents' taxable income, it might not matter if
    the accrued interest was not reported properly in the past. But if the
    amounts are significant, you might want to review prior years' returns to
    see if any of them need to be amended. Were those returns prepared by a CPA
    or other competent tax professional?

    Since the bond in your example was purchased at a discount, you have a
    further issue of the amortization of the discount, but let's leave that
    complex subject for another day. The $2.35 fee should be included in the
    tax "basis" of the bond.

    RC
    --
    R. C. White, CPA
    (Retired - no longer licensed to practice)
    San Marcos, TX

    Microsoft Windows MVP

    "Barbara Lindholm" <> wrote in message
    news:...
    >I am going to attempt to start a file and enter my parents large portfolio
    >of municipal bonds into Quicken. They have had some for years. I will not
    >be able to track the whole history; just from the date I enter them. I
    >imagine that I will first enter each one in the security list, right? Then
    >when I enter it into their account, I would have to use the "Add shares"
    >option as I don't have a cash entry to start from. I have all the
    >confirmation receipts they received from the brokerage firm. My question
    >is, when accrued interest shows on the buy confirmation, how do I account
    >for it? Do I just include it as part of the fee, which then changes the
    >price per share? e.g. One bond purchased was 5000 sh, price 96.849,
    >Principal amt $4842.45, fee of 2.35, Accrued Interest 87.05, and net amount
    >4,931.85. When I entered this bond into their account (using the "add
    >shares" option), there is no place in the entry information to put this
    >accrued interest amt. so I wasn't sure how to incorporate it into the
    >purchase. If I try to put it in as a miscellaneous expense separately, then
    >it would give them a negative cash balance and I want to avoid this. I
    >would appreciate any help in the proper way to add these bonds when I am
    >not going back to a beginning history. Thanks
     
    R. C. White, Jan 31, 2006
    #8
  9. Thank you so much for that very clear explanation on how to handle accrued
    interest. I now understand it so much more completely. I have already
    entered the bonds and did enter the accrued interest as a negative income,
    realizing that for those bought a few years ago it really didn't matter; and
    I realize that I won't have a complete history of all the interest paid in
    the past but will from this point forward, as well as bond performance. I
    went back and looked at bonds bought in 2005 and there were a couple that
    were bought after the interest paid dates (accrued interest only amounted to
    $55) but I learned something about how to handle this interest in the
    future. My parents do have a tax professional do their taxes. I have not
    had much experience buying bonds in my portfolio and I certainly understand
    the whole process better now. Thanks again to all of you who helped.
    Newsgroups are great!

    "R. C. White" <> wrote in message
    news:...
    > Hi, Barbara.
    >
    > Most of your questions have already been tackled by the other posters.
    > I'd like to focus on just the accrued interest purchased.
    >
    > Except for bonds purchased within the past year, that purchased interest
    > should have been forgotten by now. In your example, the $87.05 that your
    > parents paid out for accrued interest would have been returned to them as
    > a part of their first interest income check. On a typical bond that pays
    > interest semi-annually, the $87.05 would have reduced their income for the
    > year of purchase or the following year, depending on the timing of their
    > purchase.
    >
    > Accrued interest purchased is not an expense, exactly; it is a reduction
    > of income. If the first interest income is in the same year as the
    > purchase, it is obvious that only the net amount is income. If that first
    > interest is not received until the following year, the proper treatment is
    > the same, but it is not so obvious.
    >
    > Suppose you buy a $5,000 bond paying 6%, with $150 checks paid
    > semi-annually on March 1 and September 1. If you buy the bond on July 1,
    > you will have to also buy the $100 interest accrued since the last March
    > 1. On September 1, you will receive $150, representing the $100 you
    > bought plus $50 accrued from July 1 to September 1. Your income for that
    > year will be only $50, although you actually received $150.
    >
    > If you bought that same bond on November 1, 2005, you would have to pay
    > $50 for the interest accrued since September 1. You will not receive any
    > interest check until March 1, 2006, when you will get $150, representing
    > the $50 you paid plus $100 accrued since your purchase. For 2005, you
    > will report no income. You also will not be allowed to deduct the $50 you
    > paid for the accrued interest you bought. You must remember that Accrued
    > Interest Purchased and carry it over to 2006, when you receive the first
    > interest income, which includes what you purchased.
    >
    > For current bond purchases, you can handle accrued interest purchases in
    > the theoretically correct way, or in the more practical way, especially if
    > there are only a few of them. The correct way is to use an Asset Account
    > called Accrued Interest Receivable. When you buy the bond, put the
    > principal in Bonds and the purchased interest in this separate account.
    > When you receive the first interest check, reduce this purchased interest
    > account to zero and put only the excess in the Interest Income Category.
    > With this method, your Income Statement will always show only the interest
    > you've earned, not what you've purchased, and your Balance Sheet will show
    > the interest you've purchased as a part of your net worth.
    >
    > The more practical handling, for most people, is to just put the purchased
    > interest into the Interest Income Category as a debit (a "negative
    > income" amount). When the first interest check arrives, put it into this
    > category as usual. The plus and minus amounts will result in your correct
    > net income for the year. But if your year ends before the first interest
    > check is received, then you must remember to NOT deduct purchased interest
    > for THIS bond this year. You'll have to remember to deduct it from next
    > year's interest receipts. And you can't use interest purchased with Bond
    > A to offset interest received on Bond B.
    >
    > In your parents' situation, most of those bonds were purchased more than a
    > year ago. The first interest check on each of them was received - and
    > reported - in prior years. For those bonds, the interest purchased is no
    > longer relevant and need not be recorded at all now. Even for bonds
    > purchased last year, if the first interest receipt was in the prior year,
    > the purchased interest is not relevant now. But for bonds on which the
    > first interest has not been received, you should record the purchased
    > interest as either Accrued Interest Receivable or as a minus in income, to
    > offset that first interest check when it is received.
    >
    > Since these are all municipal bonds and, presumably, the interest has
    > always been excludable from your parents' taxable income, it might not
    > matter if the accrued interest was not reported properly in the past. But
    > if the amounts are significant, you might want to review prior years'
    > returns to see if any of them need to be amended. Were those returns
    > prepared by a CPA or other competent tax professional?
    >
    > Since the bond in your example was purchased at a discount, you have a
    > further issue of the amortization of the discount, but let's leave that
    > complex subject for another day. The $2.35 fee should be included in the
    > tax "basis" of the bond.
    >
    > RC
    > --
    > R. C. White, CPA
    > (Retired - no longer licensed to practice)
    > San Marcos, TX
    >
    > Microsoft Windows MVP
    >
    > "Barbara Lindholm" <> wrote in message
    > news:...
    >>I am going to attempt to start a file and enter my parents large portfolio
    >>of municipal bonds into Quicken. They have had some for years. I will not
    >>be able to track the whole history; just from the date I enter them. I
    >>imagine that I will first enter each one in the security list, right? Then
    >>when I enter it into their account, I would have to use the "Add shares"
    >>option as I don't have a cash entry to start from. I have all the
    >>confirmation receipts they received from the brokerage firm. My question
    >>is, when accrued interest shows on the buy confirmation, how do I account
    >>for it? Do I just include it as part of the fee, which then changes the
    >>price per share? e.g. One bond purchased was 5000 sh, price 96.849,
    >>Principal amt $4842.45, fee of 2.35, Accrued Interest 87.05, and net
    >>amount 4,931.85. When I entered this bond into their account (using the
    >>"add shares" option), there is no place in the entry information to put
    >>this accrued interest amt. so I wasn't sure how to incorporate it into the
    >>purchase. If I try to put it in as a miscellaneous expense separately,
    >>then it would give them a negative cash balance and I want to avoid this.
    >>I would appreciate any help in the proper way to add these bonds when I am
    >>not going back to a beginning history. Thanks

    >
     
    Barbara Lindholm, Feb 2, 2006
    #9
  10. Barbara Lindholm wrote:
    > Thank you so much for that very clear explanation on how to handle accrued
    > interest. I now understand it so much more completely. I have already
    > entered the bonds and did enter the accrued interest as a negative income,
    > realizing that for those bought a few years ago it really didn't matter; and
    > I realize that I won't have a complete history of all the interest paid in
    > the past but will from this point forward, as well as bond performance. I
    > went back and looked at bonds bought in 2005 and there were a couple that
    > were bought after the interest paid dates (accrued interest only amounted to
    > $55) but I learned something about how to handle this interest in the
    > future. My parents do have a tax professional do their taxes. I have not
    > had much experience buying bonds in my portfolio and I certainly understand
    > the whole process better now. Thanks again to all of you who helped.
    > Newsgroups are great!
    >
    > "R. C. White" <> wrote in message
    > news:...
    >
    >>Hi, Barbara.
    >>
    >>Most of your questions have already been tackled by the other posters.
    >>I'd like to focus on just the accrued interest purchased.
    >>
    >>Except for bonds purchased within the past year, that purchased interest
    >>should have been forgotten by now. In your example, the $87.05 that your
    >>parents paid out for accrued interest would have been returned to them as
    >>a part of their first interest income check. On a typical bond that pays
    >>interest semi-annually, the $87.05 would have reduced their income for the
    >>year of purchase or the following year, depending on the timing of their
    >>purchase.
    >>
    >>Accrued interest purchased is not an expense, exactly; it is a reduction
    >>of income. If the first interest income is in the same year as the
    >>purchase, it is obvious that only the net amount is income. If that first
    >>interest is not received until the following year, the proper treatment is
    >>the same, but it is not so obvious.
    >>
    >>Suppose you buy a $5,000 bond paying 6%, with $150 checks paid
    >>semi-annually on March 1 and September 1. If you buy the bond on July 1,
    >>you will have to also buy the $100 interest accrued since the last March
    >>1. On September 1, you will receive $150, representing the $100 you
    >>bought plus $50 accrued from July 1 to September 1. Your income for that
    >>year will be only $50, although you actually received $150.
    >>
    >>If you bought that same bond on November 1, 2005, you would have to pay
    >>$50 for the interest accrued since September 1. You will not receive any
    >>interest check until March 1, 2006, when you will get $150, representing
    >>the $50 you paid plus $100 accrued since your purchase. For 2005, you
    >>will report no income. You also will not be allowed to deduct the $50 you
    >>paid for the accrued interest you bought. You must remember that Accrued
    >>Interest Purchased and carry it over to 2006, when you receive the first
    >>interest income, which includes what you purchased.
    >>
    >>For current bond purchases, you can handle accrued interest purchases in
    >>the theoretically correct way, or in the more practical way, especially if
    >>there are only a few of them. The correct way is to use an Asset Account
    >>called Accrued Interest Receivable. When you buy the bond, put the
    >>principal in Bonds and the purchased interest in this separate account.
    >>When you receive the first interest check, reduce this purchased interest
    >>account to zero and put only the excess in the Interest Income Category.
    >>With this method, your Income Statement will always show only the interest
    >>you've earned, not what you've purchased, and your Balance Sheet will show
    >>the interest you've purchased as a part of your net worth.
    >>
    >>The more practical handling, for most people, is to just put the purchased
    >>interest into the Interest Income Category as a debit (a "negative
    >>income" amount). When the first interest check arrives, put it into this
    >>category as usual. The plus and minus amounts will result in your correct
    >>net income for the year. But if your year ends before the first interest
    >>check is received, then you must remember to NOT deduct purchased interest
    >>for THIS bond this year. You'll have to remember to deduct it from next
    >>year's interest receipts. And you can't use interest purchased with Bond
    >>A to offset interest received on Bond B.
    >>
    >>In your parents' situation, most of those bonds were purchased more than a
    >>year ago. The first interest check on each of them was received - and
    >>reported - in prior years. For those bonds, the interest purchased is no
    >>longer relevant and need not be recorded at all now. Even for bonds
    >>purchased last year, if the first interest receipt was in the prior year,
    >>the purchased interest is not relevant now. But for bonds on which the
    >>first interest has not been received, you should record the purchased
    >>interest as either Accrued Interest Receivable or as a minus in income, to
    >>offset that first interest check when it is received.
    >>
    >>Since these are all municipal bonds and, presumably, the interest has
    >>always been excludable from your parents' taxable income, it might not
    >>matter if the accrued interest was not reported properly in the past. But
    >>if the amounts are significant, you might want to review prior years'
    >>returns to see if any of them need to be amended. Were those returns
    >>prepared by a CPA or other competent tax professional?
    >>
    >>Since the bond in your example was purchased at a discount, you have a
    >>further issue of the amortization of the discount, but let's leave that
    >>complex subject for another day. The $2.35 fee should be included in the
    >>tax "basis" of the bond.
    >>
    >>RC
    >>--
    >>R. C. White, CPA
    >>(Retired - no longer licensed to practice)
    >>San Marcos, TX
    >>
    >>Microsoft Windows MVP
    >>
    >>"Barbara Lindholm" <> wrote in message
    >>news:...
    >>
    >>>I am going to attempt to start a file and enter my parents large portfolio
    >>>of municipal bonds into Quicken. They have had some for years. I will not
    >>>be able to track the whole history; just from the date I enter them. I
    >>>imagine that I will first enter each one in the security list, right? Then
    >>>when I enter it into their account, I would have to use the "Add shares"
    >>>option as I don't have a cash entry to start from. I have all the
    >>>confirmation receipts they received from the brokerage firm. My question
    >>>is, when accrued interest shows on the buy confirmation, how do I account
    >>>for it? Do I just include it as part of the fee, which then changes the
    >>>price per share? e.g. One bond purchased was 5000 sh, price 96.849,
    >>>Principal amt $4842.45, fee of 2.35, Accrued Interest 87.05, and net
    >>>amount 4,931.85. When I entered this bond into their account (using the
    >>>"add shares" option), there is no place in the entry information to put
    >>>this accrued interest amt. so I wasn't sure how to incorporate it into the
    >>>purchase. If I try to put it in as a miscellaneous expense separately,
    >>>then it would give them a negative cash balance and I want to avoid this.
    >>>I would appreciate any help in the proper way to add these bonds when I am
    >>>not going back to a beginning history. Thanks

    >>

    >
    >

    Hi Barbara - After reading all these posts! No one has mentioned htat
    there is a government uro for just this thing. It may be cumbersome
    initially because the bonds have to be entered into the program. You
    then can save the file with your data ( the bonds ) and check once or
    twice a year. I update in January and July.

    Here is the URL address

    http://wwws.publicdebt.treas.gov/BC/SBCPrice

    go here. To update change the "Value As Of" date and update.

    Have fun
    John :)
     
    John J. Piotrowski, Feb 9, 2006
    #10
  11. Barbara Lindholm

    R. C. White Guest

    Hi, John.

    Thanks for posting that URL. But that is for US Government SAVINGS BONDS,
    such as the familiar E Bonds that so many people have owned - and still own.
    There are some special rules for this kind of bond, but they don't apply to
    this discussion.

    Barbara's parents own MUNICIPAL BONDS, which are issued by STATE and local
    governments, NOT by the US Treasury. I've been retired long enough to have
    forgotten and I'm too lazy to look it up now, but there are both statutory
    and constitutional issues as to whether the federal government can burden
    states and their "political subdivisions" (such as school districts and
    cities) by taxing their bondholders on what the local governments pay out as
    interest on their borrowings. Because such interest income is exempt from
    the federal income tax, taxpayers are willing to accept a lower interest
    rate than if the interest were fully taxable to them. Some benefit flows to
    the bondholder, obviously, but the rationale of the exemption is to benefit
    the local government borrowers. We pay lower school district taxes because
    the district can borrow more cheaply to build a new school; at the same
    time, if we lend money to the district by buying their bonds, we save
    federal income tax because our interest income on those bonds is exempt from
    that tax.

    US Savings bonds are bought directly from the US Treasury at a discount and
    redeemed at their face amount several years later. No interest checks are
    received by the bondholder. All the interest income is received at
    maturity, when a bond that was bought for $75 is redeemed for the $100 face
    amount, including the $25 interest. Bondholders are taxed on the full $25
    in the year of redemption unless they have elected to be taxed on each
    year's increment as it occurs. If they have made such election, they can
    refer to the URL you posted to determine how much to include as income for
    each year.

    Municipal bonds take many forms, but the most common is sold at par (usually
    $1,000) and pays interest semi-annually by sending a check to the
    bondholder. On a $1,000 bond paying 6% annually, a county government would
    pay $30 twice a year, on June 1 and December 1, for example. If you buy
    that bond from the county at issue and hold it to maturity, your interest
    income accounting is pretty cut and dried. But if you sell the bond before
    maturity, you are entitled to the interest to the date of sale. If you sell
    it on November 1, you are entitled to the interest for the five months since
    your last interest check on June 1. You will insist that the buyer pay you
    $25 for that 5 months' interest, in addition to the $1,000 for the bond
    itself. That $25 will be interest income to you.

    From the buyer's point of view, he had to pay $1,025: he has bought the
    bond for $1,000, plus he has bought $25 interest. A month later, he will
    receive a check for $30, but only $5 of that is his income. The other $25
    simply reimburses him for what he paid the seller. That was the issue that
    Barbara was facing.

    Thanks again for the URL, John. It won't help Barbara, but it should
    benefit other readers here who hold US Savings Bonds.

    RC
    --
    R. C. White, CPA
    (Retired - no longer licensed to practice)
    San Marcos, TX

    Microsoft Windows MVP

    "John J. Piotrowski" <> wrote in message
    news:...
    > Barbara Lindholm wrote:
    >> Thank you so much for that very clear explanation on how to handle
    >> accrued interest. I now understand it so much more completely. I have
    >> already entered the bonds and did enter the accrued interest as a
    >> negative income, realizing that for those bought a few years ago it
    >> really didn't matter; and I realize that I won't have a complete history
    >> of all the interest paid in the past but will from this point forward, as
    >> well as bond performance. I went back and looked at bonds bought in
    >> 2005 and there were a couple that were bought after the interest paid
    >> dates (accrued interest only amounted to $55) but I learned something
    >> about how to handle this interest in the future. My parents do have a tax
    >> professional do their taxes. I have not had much experience buying bonds
    >> in my portfolio and I certainly understand the whole process better now.
    >> Thanks again to all of you who helped. Newsgroups are great!
    >>
    >> "R. C. White" <> wrote in message
    >> news:...
    >>
    >>>Hi, Barbara.
    >>>
    >>>Most of your questions have already been tackled by the other posters.
    >>>I'd like to focus on just the accrued interest purchased.
    >>>
    >>>Except for bonds purchased within the past year, that purchased interest
    >>>should have been forgotten by now. In your example, the $87.05 that your
    >>>parents paid out for accrued interest would have been returned to them as
    >>>a part of their first interest income check. On a typical bond that pays
    >>>interest semi-annually, the $87.05 would have reduced their income for
    >>>the year of purchase or the following year, depending on the timing of
    >>>their purchase.
    >>>
    >>>Accrued interest purchased is not an expense, exactly; it is a reduction
    >>>of income. If the first interest income is in the same year as the
    >>>purchase, it is obvious that only the net amount is income. If that
    >>>first interest is not received until the following year, the proper
    >>>treatment is the same, but it is not so obvious.
    >>>
    >>>Suppose you buy a $5,000 bond paying 6%, with $150 checks paid
    >>>semi-annually on March 1 and September 1. If you buy the bond on July 1,
    >>>you will have to also buy the $100 interest accrued since the last March
    >>>1. On September 1, you will receive $150, representing the $100 you
    >>>bought plus $50 accrued from July 1 to September 1. Your income for that
    >>>year will be only $50, although you actually received $150.
    >>>
    >>>If you bought that same bond on November 1, 2005, you would have to pay
    >>>$50 for the interest accrued since September 1. You will not receive any
    >>>interest check until March 1, 2006, when you will get $150, representing
    >>>the $50 you paid plus $100 accrued since your purchase. For 2005, you
    >>>will report no income. You also will not be allowed to deduct the $50
    >>>you paid for the accrued interest you bought. You must remember that
    >>>Accrued Interest Purchased and carry it over to 2006, when you receive
    >>>the first interest income, which includes what you purchased.
    >>>
    >>>For current bond purchases, you can handle accrued interest purchases in
    >>>the theoretically correct way, or in the more practical way, especially
    >>>if there are only a few of them. The correct way is to use an Asset
    >>>Account called Accrued Interest Receivable. When you buy the bond, put
    >>>the principal in Bonds and the purchased interest in this separate
    >>>account. When you receive the first interest check, reduce this purchased
    >>>interest account to zero and put only the excess in the Interest Income
    >>>Category. With this method, your Income Statement will always show only
    >>>the interest you've earned, not what you've purchased, and your Balance
    >>>Sheet will show the interest you've purchased as a part of your net
    >>>worth.
    >>>
    >>>The more practical handling, for most people, is to just put the
    >>>purchased interest into the Interest Income Category as a debit (a
    >>>"negative income" amount). When the first interest check arrives, put it
    >>>into this category as usual. The plus and minus amounts will result in
    >>>your correct net income for the year. But if your year ends before the
    >>>first interest check is received, then you must remember to NOT deduct
    >>>purchased interest for THIS bond this year. You'll have to remember to
    >>>deduct it from next year's interest receipts. And you can't use interest
    >>>purchased with Bond A to offset interest received on Bond B.
    >>>
    >>>In your parents' situation, most of those bonds were purchased more than
    >>>a year ago. The first interest check on each of them was received - and
    >>>reported - in prior years. For those bonds, the interest purchased is no
    >>>longer relevant and need not be recorded at all now. Even for bonds
    >>>purchased last year, if the first interest receipt was in the prior year,
    >>>the purchased interest is not relevant now. But for bonds on which the
    >>>first interest has not been received, you should record the purchased
    >>>interest as either Accrued Interest Receivable or as a minus in income,
    >>>to offset that first interest check when it is received.
    >>>
    >>>Since these are all municipal bonds and, presumably, the interest has
    >>>always been excludable from your parents' taxable income, it might not
    >>>matter if the accrued interest was not reported properly in the past.
    >>>But if the amounts are significant, you might want to review prior years'
    >>>returns to see if any of them need to be amended. Were those returns
    >>>prepared by a CPA or other competent tax professional?
    >>>
    >>>Since the bond in your example was purchased at a discount, you have a
    >>>further issue of the amortization of the discount, but let's leave that
    >>>complex subject for another day. The $2.35 fee should be included in the
    >>>tax "basis" of the bond.
    >>>
    >>>RC
    >>>
    >>>"Barbara Lindholm" <> wrote in message
    >>>news:...
    >>>
    >>>>I am going to attempt to start a file and enter my parents large
    >>>>portfolio of municipal bonds into Quicken. They have had some for years.
    >>>>I will not be able to track the whole history; just from the date I
    >>>>enter them. I imagine that I will first enter each one in the security
    >>>>list, right? Then when I enter it into their account, I would have to
    >>>>use the "Add shares" option as I don't have a cash entry to start from.
    >>>>I have all the confirmation receipts they received from the brokerage
    >>>>firm. My question is, when accrued interest shows on the buy
    >>>>confirmation, how do I account for it? Do I just include it as part of
    >>>>the fee, which then changes the price per share? e.g. One bond purchased
    >>>>was 5000 sh, price 96.849, Principal amt $4842.45, fee of 2.35, Accrued
    >>>>Interest 87.05, and net amount 4,931.85. When I entered this bond into
    >>>>their account (using the "add shares" option), there is no place in the
    >>>>entry information to put this accrued interest amt. so I wasn't sure how
    >>>>to incorporate it into the purchase. If I try to put it in as a
    >>>>miscellaneous expense separately, then it would give them a negative
    >>>>cash balance and I want to avoid this. I would appreciate any help in
    >>>>the proper way to add these bonds when I am not going back to a
    >>>>beginning history. Thanks
    >>>

    >>
    >>

    > Hi Barbara - After reading all these posts! No one has mentioned htat
    > there is a government uro for just this thing. It may be cumbersome
    > initially because the bonds have to be entered into the program. You then
    > can save the file with your data ( the bonds ) and check once or twice a
    > year. I update in January and July.
    >
    > Here is the URL address
    >
    > http://wwws.publicdebt.treas.gov/BC/SBCPrice
    >
    > go here. To update change the "Value As Of" date and update.
    >
    > Have fun
    > John :)
     
    R. C. White, Feb 9, 2006
    #11
  12. R. C. White wrote:
    > Hi, John.
    >
    > Thanks for posting that URL. But that is for US Government SAVINGS
    > BONDS, such as the familiar E Bonds that so many people have owned - and
    > still own. There are some special rules for this kind of bond, but they
    > don't apply to this discussion.
    >
    > Barbara's parents own MUNICIPAL BONDS, which are issued by STATE and
    > local governments, NOT by the US Treasury. I've been retired long
    > enough to have forgotten and I'm too lazy to look it up now, but there
    > are both statutory and constitutional issues as to whether the federal
    > government can burden states and their "political subdivisions" (such as
    > school districts and cities) by taxing their bondholders on what the
    > local governments pay out as interest on their borrowings. Because such
    > interest income is exempt from the federal income tax, taxpayers are
    > willing to accept a lower interest rate than if the interest were fully
    > taxable to them. Some benefit flows to the bondholder, obviously, but
    > the rationale of the exemption is to benefit the local government
    > borrowers. We pay lower school district taxes because the district can
    > borrow more cheaply to build a new school; at the same time, if we lend
    > money to the district by buying their bonds, we save federal income tax
    > because our interest income on those bonds is exempt from that tax.
    >
    > US Savings bonds are bought directly from the US Treasury at a discount
    > and redeemed at their face amount several years later. No interest
    > checks are received by the bondholder. All the interest income is
    > received at maturity, when a bond that was bought for $75 is redeemed
    > for the $100 face amount, including the $25 interest. Bondholders are
    > taxed on the full $25 in the year of redemption unless they have elected
    > to be taxed on each year's increment as it occurs. If they have made
    > such election, they can refer to the URL you posted to determine how
    > much to include as income for each year.
    >
    > Municipal bonds take many forms, but the most common is sold at par
    > (usually $1,000) and pays interest semi-annually by sending a check to
    > the bondholder. On a $1,000 bond paying 6% annually, a county
    > government would pay $30 twice a year, on June 1 and December 1, for
    > example. If you buy that bond from the county at issue and hold it to
    > maturity, your interest income accounting is pretty cut and dried. But
    > if you sell the bond before maturity, you are entitled to the interest
    > to the date of sale. If you sell it on November 1, you are entitled to
    > the interest for the five months since your last interest check on June
    > 1. You will insist that the buyer pay you $25 for that 5 months'
    > interest, in addition to the $1,000 for the bond itself. That $25 will
    > be interest income to you.
    >
    > From the buyer's point of view, he had to pay $1,025: he has bought
    > the bond for $1,000, plus he has bought $25 interest. A month later, he
    > will receive a check for $30, but only $5 of that is his income. The
    > other $25 simply reimburses him for what he paid the seller. That was
    > the issue that Barbara was facing.
    >
    > Thanks again for the URL, John. It won't help Barbara, but it should
    > benefit other readers here who hold US Savings Bonds.
    >
    > RC

    Like most people I hae a vision problem. Sometimes called CRC (can't
    read crap).

    Regards
    John
     
    John J. Piotrowski, Feb 11, 2006
    #12
  13. Barbara Lindholm

    R. C. White Guest

    Hi, John.

    > Like most people I hae a vision problem. Sometimes called CRC (can't
    > read crap).
    >
    > Regards
    > John


    That's not as bad as my CRS (can't remember stuff)! ;>{

    RC
    --
    R. C. White, CPA
    (Retired - no longer licensed to practice)
    San Marcos, TX
     
    R. C. White, Feb 12, 2006
    #13
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