Drip Portfolio Report

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Drip Record Keeping
Tools for Fools

By George Runkle ([email protected])

ATLANTA, GA (March 1, 1999) -- Last Monday in the Drip report I mentioned how Quicken, or (shameless promotion) the Motley Fool Port Track spreadsheet can make accounting for Drips much easier at tax time. This past week I received one e-mail asking where to find more information on how to use Quicken or Excel. As much as I'd like to suggest our FoolMart products, such as Port Tracker (because we need to pay the bills and they're good products), today we'll explain how to use Quicken and TurboTax.

Using Quicken to track investments is quite easy. The software walks you through setting up an investment account, and asks you a number of questions, such as "Is the account to track one mutual fund?" (which hopefully you aren't doing), or "Is the account an IRA?" With a Drip plan, I'd set up my Quicken account as if it were a regular brokerage account, because this gives you the most options when you're doing the different transactions (buys, sells, adding dividends, etc.). Also, if you have regular automatic contributions, you can schedule them on the calendar in Quicken, and have them automatically debited against your checking account using the transfer function.

For more information on using Quicken, I suggest the book Quicken For Dummies, which explains things pretty well. Also, check out the Drip message boards on our website (they're linked in the top right of this page). There is a mountain of good information there about how to use Quicken, as well as other record keeping means for Drip investors.

Now, assuming you're good about entering your data in Quicken and everything is up to date, we'll next consider tax time (ugh!), because we'll be there in a handful of short weeks. Even though you can go get TurboTax to do much of the tax work for you, there are a few things that you need to do first, which I'll talk about here.

Before your investment data is sent into TurboTax, you must link it to a tax form in Quicken. For example, mortgage interest has to be linked with Schedule A, employee expenses with Form 2106, and so on. However, THIS IS NOT REQUIRED for capital gains and losses. This is already done for you in Quicken -- I didn't know that and I wasted a long time trying to figure out how to do it. Everything in short-term and long-term capital gains and losses is already linked to Schedule D. This is a real help, since if you try to do Schedule D by hand when you've sold shares in a Drip, you will go insane (or throw a television through the wall, at the very least). My computer-generated Schedule D even lists partial shares that were sold that have a cost basis of less than a dollar.

Now, another item to watch out for is any of your children's Drip accounts that you may be setting up. Save yourself a lot of trouble and put them in their own Quicken file (if you do opt for Quicken). Otherwise, if some of their shares are sold, guess what? Quicken and TurboTax will put them right in your Schedule D. This goes for (ugh!) mutual funds that you may have in your children's names, too. Or else you have to "trick" the program by saying they are IRA accounts. Then you get to do the Dreaded Schedule D by hand for them. That might serve you right if it's an underperforming mutual fund, but that's a little off-topic.

Further cautions are in order about TurboTax. First, it does not automatically save everything like Quicken does. I lost my work-in-progress several times. Also, I've found TurboTax tends to crash quite easily. I suggest that you have as few programs open as possible when using it. Also, watch it with your connection to the Internet. You need to be connected to update the program, but after that I would disconnect. I was sent a message on ICQ while TurboTax was printing. My computer crashed, my printing was lost, as well as changes I made on my tax form before printing. Earlier in my tax preparation, it looked like Microsoft Outlook did the same thing as it retrieved some messages off the server.

In the end, TurboTax and Quicken can save you a lot of aggravation and time when you use them correctly. They aren't too hard to use, but you have to keep up the data entry as you buy and sell your shares, and reinvest the dividends. Whatever you decide to use, you certainly should strongly consider regularly tracking your Drip investments in a helpful accounting spreadsheet. If you don't, the eventual hassles of Drip accounting might be a bit more than I personally would want to handle.

To discuss record keeping or Drip investing, please visit the Drip Portfolio message board linked at the top right of this page. And for useful investment tools of all kinds (from spreadsheets to books), please visit FoolMart. Yes, we ended this column with another plug. We hope that it's a helpful plug at many times during your investment career.

[To be fair to George, I, TMF Jeff, added that last plug. Fool on!]

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