Dear Searchin,
You have two separate transactions going on here.
1) One was the stock replacement.
"new stock in company B."
Just record this action as a memo entry, using the description fields
in Quicken. List the total shares you have, so you can find it later.
There is no cash activity in this transaction.
2) The second transaction was the cash distribution.
This could be handled two ways.
a)Call the company and ask them if they will be reporting that as a
dividend, which means, you'd have to report the income as ordinary
income. (In Quicken, report it as dividend income.)
or
b) If they tell you they'll be reporting it as a return of capital,
then, in Quicken, set up an income account for Capital Gains. Report
it as a capital gain. (And when you do your tax return, report it on
Schedule D as a long-term capital gain with a purchase date of 1989
and a cost of $-0-.)
You can read more information about dividends, capital gains
distributions and other corporate distributions in IRS's Publication
17, chapter 9
http://www.irs.gov/formspubs/display/0,,i1%3D50%26genericId%3D11169,00.html
Ideally, you'll be able to report the income as dividends and take
advantage of the lower capital gains rates.
I hope this helps.
Best wishes,
Your TaxMama-ga |
Request for Answer Clarification by
searchin-ga
on
05 Oct 2002 16:18 PDT
Dear taxmama-ga,
I'm sorry that I took so long, but after reading your advice, I
contacted company 'B' to ask how they will be reporting the $9450. I
was advised that I can take this as a long term cap. gain! Yahoo!!!
Re: your first paragraph...why wouldn't I do a "MS"...move shares out
without receiving cash for company A....then move shares in with
company B...and use the quoted price on opening day( after transfer)
as my cost basis? This way, I'll be able to track company B, and the
shares, as they move up or down and the cost basis for company A has
been shifted to company B?
Thank you for your advice to call company re: $$$...but can't see the
flaw of what I want to do regarding using the 'move shares in/out
without receiving cash". Still searchin....
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Clarification of Answer by
taxmama-ga
on
05 Oct 2002 19:54 PDT
Hi Searchi'
Good to know that the stock will be reported as a capital gain.
I'm not sure that I understand what it is you have in mind?
But now that you're dealing with a capital gain, here's what you can do.
First, I want you to understand that the reason you want to keep these
shares connected to the original shares is for the 'holding period.'
Keeping these associated with each other means that the new stock you
had is treated, for tax purposes, as though you bought it in 1989.
So, even if you sell them tomorrow, you will have a long-term capital
gain on the transaction.
Second, you can't have a negative basis in stock.
1) You can report the whole $9,450 as the sale price,
and show the cost as $8,000. That leaves you with a capital
gain of $1,450, and a basis of -0- in your stock.
Purchase date is 1989.
2) Since you really didn't sell any shares, you could also do this.
If you're in a low tax bracket this year, you could also choose to
report the whole $9,450 as the sale price, and show the cost as -0-.
You'd still have the 1989 purchase date. And the old shares would
still have a basis of $8,000. (With 3150 shares 3:2, the basis will
be $2.54 per share.)
Oh, why can't you use the quoted price as your cost basis?
Because you didn't pay it.
You can only use actual money spent to buy a stock as its basis.
(Or money equivalents, like the value of labor or barter goods.)
Good try though. I like it. And I understand why you would want to.
You want to track the increase or decrease in value of the stock from
the time you received it.
Here's what I do with my split shares like that.
I make an entry on the memo line in QuickBooks (you use Quicken)
about the stock price on the date I received it.
That helps me decide when to sell it.
Does that help?
Your TaxMama-ga
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