Accounting for OID in Quicken

Posted by Walt Bilofsky on February 24, 2007, 9:18 pm

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As tax time draws near, a reminder on dealiing with Original Issue
Discount. This is imputed interest you don't receive, but have to pay
tax on anyway. It occurs with zero coupon bonds, inflation-adjusted
Treasuries, etc.

If you receive a 1099-OID form, you have OID.

Paying the tax is automatic. But you should increase the basis of the
security by the amount of OID so you don't pay capital gains on the
same amount when you sell it.

I handle this by entering two transactions into Quicken:

Interest income from the security for the OID amount.
Return of capital from the security for MINUS the OID amount.

This results in no net cash change in the account, but increases the
basis by the OID amount.

- Walt Bilofsky

Posted by Route 101© on February 28, 2007, 12:39 am

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Assuming you purchased the bond(s) and received the OID (i.e., you bought
part of a the new issue), I agree about the taxes. However, many people buy
bonds on the secondary market at par or above, but also receive an annual
1099-OID -- it travels from owner to owner with the bonds; these people may
adjust out (subtract) the amount of OID after reporting in on Schedule B.
Another reason (besides 1099-Bs) to keep all original records/confirms as
long as you own a security.
..............................
They also serve who only point and laugh.

> As tax time draws near, a reminder on dealiing with Original Issue

> Discount. This is imputed interest you don't receive, but have to pay

> tax on anyway. It occurs with zero coupon bonds, inflation-adjusted

> Treasuries, etc.

> If you receive a 1099-OID form, you have OID.

> Paying the tax is automatic. But you should increase the basis of the

> security by the amount of OID so you don't pay capital gains on the

> same amount when you sell it.

> I handle this by entering two transactions into Quicken:

> Interest income from the security for the OID amount.

> Return of capital from the security for MINUS the OID amount.

> This results in no net cash change in the account, but increases the

> basis by the OID amount.

> - Walt Bilofsky