Chapter 8 - investment accounts

[David Carlson]

On 4/27/2014 6:01 AM, Mike or Penny Novack wrote:
>
>> This is the same with the other two points, is there an easier way to do
>> things i.e calculate capital gain/loss? or is this the correct method.
>>
>>
>> Cheers,
>>
>> David
>>  
>>
> Just a note, keeping in mind that I am NOT a qualified tax advisor.
>
> But trading in stocks, isn't it more complicated determining if the
> gain (or loss) is a CAPITAL gain (or loss) versus a TRADING gain (or
> loss)? Doesn't how long held make a difference? Or in any case, isn't
> this something that would depend on the rules for your jurisdiction?
>
> Michael
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Michael's point is very important at tax time, and GnuCash has no
mechanism for correctly assigning that differentiation in your neighborhood.

I was hoping that others would describe ways to handle the technical
part of gains or losses in GnuCash.  The difficulty arises from the need
to account for exactly the same amount of currency in closing (usually
sale) transactions as in the opening transactions for the same lot of
each security.  The closing transaction results in some amount of cash
returned to the investor's pocket exceeding the cash invested
(hopefully) by a realized gain.  This is separate from dividends, for
example, which are not counted against the amount invested in many
jurisdictions, including the United States.

Because we have already offset currency received from dividends with
income and currency spent on whatever with expenses in separate
transactions, we can ignore them when we consider realized gains or losses.

In summary, for each lot the round trip investment must result in zero
sum of cash in, cash out and realized gain or realized loss.  GnuCash is
not equipped to calculate that directly.  It has a mechanism that is
supposed to track 'lots' to help with this problem, but many users,
myself included, have not found it to work very well, especially to
track the tax distinction that Michael refers to, so we use a separate
spreadsheet (or expensive investment oriented software) to track the
amount of realized gain or loss needed to zero out the currency for each
lot when it is closed.

It is possible to use the trial balance mechanism to verify whether we
have been accurate as we entered the gains or losses, but I personally
am still learning how to do that, and I cannot describe that process
accurately yet.

Bottom line is that we manually calculate and enter the realized gain or
loss.  I hope that helps.

David C