Friday, September 28, 2007

Handling Tricky Stock Investment Transactions in Quicken

If youre an investor using Quicken, you should find your investment record-keeping pretty straight-forward. There are, however, several tricky investment transactions you may need to record, particularly if youre an aggressive investor (one whos willing to bear increased risk in the pursuit of greater returns). These transactions involve short sales, margin loans and interest, call and put activities, employee stock options, and corporate reorganizations. The following paragraphs briefly describe how you record these other types of transactions.

Short Sales

A short sale occurs when you sell stock you dont actually hold. The logic of a short sale is that rather than buying low and later selling high, you first buy high and then sell low. (To make the transaction, you actually borrow the stock from your broker.)

To record a short sale transaction in Quicken, you just sell a stock you dont own. Select the Enter Transaction command button, choose the Short Sale option, and fill in the appropriate categories in the Short Sale dialog box.

To show that these are shares you actually owe your broker, Quicken displays the number of shares and the current market value as negative amounts in the Portfolio View window. To record the transaction in which you close out your short position by buying the stock youve previously sold, you record a stock purchase in the usual way.

Margin Loans and Margin Interest

If you purchase a security and the total purchase cost exceeds the cash balance in a brokerage account, Quicken assumes that youve borrowed the needed cash on margin from your broker. To show the margin loan, it displays the cash balance as a negative value. To record margin loan interest in cases where you have a linked cash account, you record the margin loan interest as an expense when you record the withdrawal from the linked cash account that pays the margin interest.

To record margin loan interest in cases where you dont have a linked cash account, choose the Enter Transaction command button and choose the Margin Interest Expense option. When Quicken displays the Margin Interest Expense dialog box, use it to describe the margin interest.

Calls and Puts

A call is an option to buy a share of stock. A put is an option to sell a share of stock. You may write, buy, or exercise calls and puts.

Writing Calls and Puts

When you write a call or put, what you really do is collect money from someone in return for promising the person the option, or chance, to buy or sell a share of stock at a specified, or strike, price by some future date.

When a call or put expires without being exercisedand this is the usual caserecording the transaction is simple. If youre the one writing the call or put, just record the transaction as miscellaneous income.

Buying Calls and Puts

If youre the one buying the call or put, you just record the option purchase the way you do any other stock purchase. If the call or put expires and becomes worthless, just record the sale as a stock purchase with the amount set to zero. (This is the most common case.) If, on the other hand, you sell the call or put before the expiration date because the call or put can be profitably exercised, you record the sale as a stock sale with the amount set to whatever you sell the option for.

Exercising Calls and Puts

You probably wont actually exercise a call or put. Youll probably sell it, as described above. If you do exercise a call or buy option, however, you need to record two transactions. To record the exercise of a call option, first record a transaction that sells the call option for zero. Then record a transaction that purchases the optioned number of shares at the option price. To record the exercise of a put option, first record a transaction that sells the put option for zero. Then record a transaction that sells the optioned number of shares at the option price.


For income tax purposes, what you pay for a call needs to be counted as part of the purchase price if you exercise the call option and purchase shares. What you receive for a put needs to be counted as part of the sales price if you exercise the put and sell shares. This can get complicated, so you may want to consult your tax advisor.

Employee Stock Options

You can track the value of employee stock options in the same way that you track shares of stock. (The purchase price in this case is zero if you dont pay anything for the option.) The value of the option, of course, is the difference between the exercise price and the fair market value of the vested shares. The income tax accounting for stock options can get a little tricky, depending on whether the options are part of a qualified incentive stock-option plan or a nonqualified stock-option plan. You may have a taxable gain when you are granted or when you exercise the option, or you may have a taxable gain only later when you sell the shares. If you have questions about the income tax treatment, consult your tax advisor. Youll need to show him or her the stock option plan document, so be sure to bring that with you.

About the author: CPA Stephen L. Nelson wrote bestselling books on Quicken and QuickBooks. Which have together sold more than one million copies, and the popular downloadable do-it-yourself guides Information about the Corporation, and Costs & Benefits of Incorporation , Incorporating a Business in Pennsylvania, Incorporating a Business in Illinois .