How to record U.S. Treasury bill transactions

Over the years, a few people have posed the question “How do you record the purchase and redemption of Treasury bills (T-bills), in Microsoft Money?”  Unlike other investments where the interest is posted to your account as interest, T-bill interest is “hidden interest”, and it is the difference between your discounted purchase price at auction, and the sell price @ 100 on the redemption due date, which…

• would be reported erroneously as a capital gain
• if “Redeem CD/Bond” is selected, rather than “Sell”, as the entire amount of the bond is erroneously reported as interest
• and any interest would also be treated as “regular” interest subject to State and Local Taxes, rather than properly as U.S. Government interest.

What might be a better way to record the purchase of Treasury bills (T-bills), in Microsoft Money?

Here is how I handle this special case:

BUY

Recording the purchase of T-bills is pretty straight forward, and just as I do CDs, they’ll be designated as Bonds (using the pre-defined subtype: Treasury Bills, rather than Other) with a normal par of 100 (Money defines price as the percentage of par value).  In my case, I’ve set up a TreasuryDirect  investment account to hold all of my transactions with Treasury Direct.gov, but unlike most brokerage investment accounts, the Cash (transfer) portion will be the bank account that I’ve linked up, rather than the in-house brokerage Checking account*.

Example: (new) “BUY” of 100,000  “US TREASURY BILL DUE 6/4/2019”, an 8-week bill @ $99.629778 = $99,629.80

SELL

It appears that the redemption is the trickier part.  When a CD is sold @ 100 it doesn’t reflect hidden interest.  The interest is usually recorded separately as either Investment Interest or as Reinvested Interest.

First, I created a unique Investment Income sub-category “Treasury Interest“, which I assigned to:

• Tax form “Schedule B”
• Form Line “U.S. government interest”

, so that the Tax transactions are treated as State & local non-taxable income correctly.  (Note: I had originally used Treasury Bill Interest”, but I later renamed it, so that it could also apply for Savings Bonds purchased in the same account.)

On the day of redemption, just like CDs, again two transactions will be needed:

1.  Record the interest as a separate investment activity, transferred to your “Cash” account, selecting “Other Income” as the activity.  I discovered that this allows you to then specify a category (otherwise not possible), which in this case will be “Investment Income : Treasury Interest” (rather than the generic taxable Interest).

Example: (new) “OTHER INCOME” of 100,000  “US TREASURY BILL DUE 6/4/2019” of $370.20, assigned to Category “Treasury Bill Interest”, which for 8 weeks is the equivalent of a 2.429% APY 

2. If you elect to withhold federal taxes from your TreasuryDirect distributions (see Account Info tab down near the bottom), record this as a transfer from your payout in your “Cash” account, by selecting “Other Expense” as the activity, and “Taxes : Estimated Federal Income Tax” as the category.

3.  Then in the actual redemption transaction, record the actual sale properly at par, but offset the interest as commission, so the total doesn’t reflect that hidden interest.  Today, I discovered a flaw in the “Tax Software” report if “Redeem CD/Bond” is selected, rather than “Sell”, as the entire amount of the bond is erroneously reported as interest, so I would instead select “Sell”.

Example: (new) “SELL” of 100,000  “US TREASURY BILL DUE 6/4/2019” @ 100, less Commission of $370.20 = $99,629.80, rather than the actual $100,000 received, so no Capital Gain is invoked.

click to enlarge

Reconciling

When reconciling the redemption into your Cash account, be sure to match the deposit against the set of transactions described above (not just the sale transaction), although I find it easier to mark the set of transactions as cleared (ctrl-M), and simply accepting the downloaded deposit transaction as-is (marking it as void).

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*   Note that if you are reinvesting within the TreasuryDirect account (auto roll), simply enable “Track Cash transactions” in Settings, so that those bond redemptions and re-purchases are transferred to/from the virtual TreasuryDirect Cash account, rather than the linked Bank account, to avoid confusion and reflect reality.

-ameridan