When to use Quicken for Mutual Fund Recordkeeping
by: Stephen L. Nelson, CPA
While you might assume any mutual fund investor should use Quicken?s mutual fund record-keeping tools, that isn?t the case. Because investment record keeping, including mutual fund record keeping, requires significant work and involves complexity, you need to make sure the effort is worth it.
In general, you keep investment records for any of the following reasons:
Reason 1: You want to track interest and dividend income.
Reason 2: You want to track realized and unrealized capital gains and losses.
Reason 3: You want to measure or grade the profitability of an investment by calculating its annual return or yield.
Obviously, all three of the tasks in the preceding list sound worthwhile, but many investors won?t need to use Quicken?s record-keeping tools to get this sort of information.
Tracking Investment Income
If your investing is done using tax-deferred accounts, such as individual retirement accounts, 401(k)s, and other similar investment containers, you don?t need to track the investment?s income. The income from tax-deferred investments stored is not currently taxable. The money you contribute to one of these tax-deferred accounts can be counted as a deduction when the money is transferred into the account. Any money you ultimately withdraw from one of these accounts can be counted as income when you move money out of the account and into your regular checking account.
For example, if you contribute money to an individual retirement account by writing a check on your regular bank account, you can categorize the check as ?IRA contribution? when you write the check. This categorization lets you easily track the IRA contribution deduction you will need to report on your tax return. Similarly, if you withdraw money from an IRA account, all you need to do is categorize the deposit as IRA income. This lets you keep track of the IRA withdrawals you will also need to report on your tax return.
Tracking Capital Gains
As mentioned earlier, realized and unrealized capital gains are often the second reason for using Quicken for investment record keeping. In the case of a regular taxable investment account, any time you buy and then later sell an investment, you experience a capital gain or loss that needs to be reported on your tax return. Because capital gains and losses are important for your tax return, when you keep records of taxable investments you want to track these items. You even want to track potential, or unrealized, capital gains and losses.
However, while tracking unrealized and realized capital gains and losses is important for taxable investment accounts, you don?t need to do this for tax-deferred investment accounts like individual retirement accounts and 401(k) accounts. The reason is simple. For tax-deferred investment accounts, gains and losses aren?t taxable. Just as is the case with investment income, inside a tax-deferred investment account, gains and losses have no effect on taxable income. Again, the only tax effect comes from money you move into and out of the account. In general, money you move into the account is a deduction for purposes of calculating your taxable income. Money you move out of your account is an income amount for purposes of calculating your income tax return.
The general rule described in the preceding paragraph?that money moved into and out of a tax-deferred investment account is what produces a tax deduction or taxable income amount?is true. However, predictably, some tax-deferred investment accounts don?t work this way. There are, for example, nondeductible IRA and Roth IRA accounts. A nondeductible IRA account doesn?t give the taxpayer a deduction merely for moving money
into the account. Also, a Roth IRA account doesn?t actually produce any taxable income just because you move money out of the account.
The primary benefit of a Roth IRA is that you get to withdraw money from the IRA without including the withdrawal on your tax return. However, in spite of the fact that money moved into certain types of IRAs or out of certain types of IRAs doesn?t trigger a tax deduction or taxable income, the general rules described here still apply. Even for nondeductible IRAs or Roth IRAs, you don?t need to track investment income, dividend income, capital gains, and capital losses for tax record-keeping using Quicken.
Measuring Investment Performance
As identified earlier, the third reason for investment record keeping concerns investment performance measurement. In general, one of the things you want to do when you become serious about your investing is calculate how good or how bad an investment performs. Complete and accurate investment records force you to honestly evaluate your investing.
One of the ways you measure investment performance is by calculating the annual return, or yield, produced by the investment. For example, if you buy a stock for $12 a share and later sell it for $18 a share, you should calculate the annual return on the stock.
An annual return, or yield, resembles an interest rate. By comparing the return a stock earns to the return provided by other investments, you gain a frame of reference and get a better idea of whether a particular investment makes sense.
While calculating returns obviously makes sense, note that one of the tasks your mutual funds management company does is calculate annual returns. Therefore, you don?t need to duplicate this effort. In effect, one of the services you are already paying the mutual funds management company for is the calculation of this important performance measure.
Mutual fund management companies calculate returns on an annual basis?typically using the calendar year as the period for which returns are calculated. Your investment holding period may not match the period for which the return was calculated. For example, if you hold an investment for one year but your year runs from July 1 to June 30, a return measure provided by the mutual fund company may not be useful if the return is from January 1 to December 31. Nevertheless, if you use the prudent mutual fund investment strategy?which is simply to invest for longer periods, to buy and then hold?the mutual fund management company?s performance measurements do give you the information you need.
About The Author
Seattle certified public accountant & author Stephen L. Nelson wrote Quicken for Dummies and more than 100 other books as well. Nelson holds an MBA in Finance and an MS in taxation. His web site is http://www.stephenlnelson.com
|
The SIMPLE Way to Save For Retirement
The SIMPLE Way to Save For Retirement
by: Ken Morris
A relative newcomer to the retirement plan market, the SIMPLE IRA can be a cost-effective retirement planning alternative for small employers and their employees.
A SIMPLE IRA plan consists of a deferral program for eligible employees, along with mandatory contributions by employers. An eligible employer is defined as an employer who has no more than 100 employees that received at least $5,000 in compensation from the employer in the preceding calendar year. An employer maintaining a SIMPLE plan may not maintain any other qualified retirement plan in which employees currently receive benefits.
What makes the SIMPLE IRA so attractive to business owners is their ability to defer the maximum ($10,000 for 2006) without regard to employee participation.
There is no ADP test, which limits how much an employer may defer based on average deferrals of non-highly compensated...
Ira > The SIMPLE Way to Save For Retirement
The End Of A Dream, What Economic Factors Are Stimulating Self Directed Investment Market?
The End Of A Dream, What Economic Factors Are Stimulating Self Directed Investment Market?
by: Joshua Geary
The 40 Year Plan is Over
What is truly driving the market of self directed retirement investing?
Is it the buff real estate market?
Or are there other economic factors?
Unbeknownst to 98% of working people, the 40 year plan is over.
Statistics show that by age 65 less than 2% of Americans can truly retire in comfort without the help of family members or the government.
The lackluster performance of the stock market over the past 6 years has dashed many people's hopes of retiring early.
It used to be that you could get a great education, get a great job and settle with a company by 25 years of age, keep your nose clean, work your way to the top, invest in your companies stock and by age 65 retire the company you sacrificed for will take care of your retirement and medical expenses for life.
Ira > The End Of A Dream, What Economic Factors Are Stimulating Self Directed Investment Market?
Substantially Equal Payments Relief
Substantially Equal Payments Relief
by: Ken Morris
If you initiated early distributions from your Individual Retirement Account (IRA) in the last couple of years using a Substantially Equal Payment plan, your annual distribution amount may be more than your current account balance can bear.
You may think there is nothing you can do to alter your distribution amount and slow down the depletion of your IRA account.
This is not true.
The IRS now permits you to make a one-time, permanent reduction to your annual distribution amount.
The primary purpose of an IRA is to accumulate assets for retirement.
Therefore, distributions taken before age 59 ? are subject to a 10% premature distribution penalty, unless an exception applies.
One such exception is a Substantially Equal Payment plan, which as you know is subject to several requirements.
For example, your may not stop or otherwise modify...
Ira > Substantially Equal Payments Relief
Tax Magic: How To Turn Taxable Income Into Tax-Free Income
Tax Magic: How To Turn Taxable Income Into Tax-Free Income
by: Wayne M. Davies
Believe it or not, there are ways to convert taxable income
into non-taxable income, without any fear of an IRS audit.
Here's one of my favorites. It's been part of our
tax code for over 30 years, yet many still don't take
advantage of it.
What am I talking about?
The IRA -- Individual Retirement Account.
Now, before you say, "Oh, I know all about that one; what's
so great about an IRA?", give me 10 minutes to explain 3 new
benefits to the IRA rules that you may not realize.
BENEFIT #1: How To Avoid Tax Rather Than Postpone Tax
First, did you know that there are now 2 kinds of IRA's
available?
The so-called Traditional IRA is the one that first came
out way back in the 1970's.
But there's a newer version of the IRA that's only a few
years old -- it's called...
Tax Magic: How To Turn Taxable Income Into Tax-Free Income
Ira > Tax Magic: How To Turn Taxable Income Into Tax-Free Income
A Puppy for Christmas
A Puppy for Christmas
by: Angela Heyburn
So you want to buy the kids a puppy for Christmas. Sounds like a great idea, may even teach the kids responsibility by caring for the puppy.
We could put it in a box and put a large bow around it, pop in a few air holes - what a great surprise for the kids, Christmas morning.
Wrong! This is a very bad idea. Think about things from the puppy's point of view. It is a living creature with needs. Young puppies...
A Puppy for Christmas
Ira > A Puppy for Christmas
Ira When to use Quicken for Mutual Fund Recordkeeping
Hair Removal: The Good News
Hair Removal: The Good News
by: Ron King
If you're 1 of the millions of people who have hair growing where you don't want it, today's good news is, you have a wide range of effective hair removal options available to you.
Reasons For Hair Removal
People's reasons for wanting hair removed run the gamut from medical necessity to "just because I feel like it." Many women include hair removal as part of their normal cosmetic routine. They shave their...
Hair Removal: The Good News Ira
Ira > Hair Removal: The Good News
A Year?s Worth of Character Training to Last a Lifetime
A Year?s Worth of Character Training to Last a Lifetime
by: Kate Hufstetler
Ever wonder why some kids are the way they are? Ever wonder why some kids seem to lack the basics in true inner character? Well, just exactly how did we think children would ever get character ? without being taught character. Long gone are the days when whole communities worship weekly. Long gone are the days when everyone in our small societal circles subscribe to the same exacting...
puppy training A Year?s Worth of Character Training to Last a Lifetime Ira When to use Quicken for Mutual Fund Recordkeeping
Ira > A Year?s Worth of Character Training to Last a Lifetime