Security Related "Income" .... or "Offset of Expenses"?

Return of Capital so the Cap Gain will be increased when you finally sell.

If you use average cost this will work OK. If you specify shares for sales then the return of cap should be against specific shares.

Hi, Jaygreg.

Sad to say, you can't properly classify that $150 receipt until you sift through those "boxes of the paperwork" to find out WHY somebody sent you the check. :>(

You said it was "for settlement in a class action suit against the firm." But who is "the firm"? The company whose stock you held? Or the stockbroker? Or some law firm? Or somebody else?

That law firm SHOULD have specified the ultimate source of the payment - and the reason for it. That information is probably in those boxes, but it SHOULD have been clearly summarized on top of the pile.

To properly classify the $150, you need to know the claim stated in the lawsuit AND the court's finding, saying WHO must pay you and WHY - the legal justification for the payment.

If you mention the name of the company and/or the title of the case, perhaps someone here will recognize it or may be able to look it up. Otherwise, you might have to ask the law firm that sent you the check.

If you can't get a good answer, my suggestion would be to apply the $150 to reduce your basis in that stock. In other words, if the stock cost you $10,000, reduce your cost to $9,850. Then, when you sell the stock - some day - your gain will be $150 more (or your loss will be less) and you will settle up with the IRS at that point, as Zaidy said

A Return of Capital need not be reported in the year that it is received unless that is also the year of sale OR the amount received exceeds your basis in the stock. If, for example, that stock had cost you only $125, then the $150 Return of Capital would produce a $25 taxable gain.

Too often, especially in class-action lawsuits with thousands of parties and usually tiny settlement checks, the effort involved in determining the proper tax treatment far exceeds the amounts involved.

Since I've been retired for nearly 20 years and tax rules change daily, please be sure to check with your own CPA or tax attorney to be sure that my suggestion is proper in your case.

RC

This is NOT a tax line item UNTIL you sell when the total cost of your investment is taken into account.

I use Q2008 Premier, not H&B, but there should be a transaction termed "Return of Capital" as a choice in the Investment account's "Type of Transaction".