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Topic: REITs
The recent posts about the difficulty with investment clubs
owning MLPs at tax time has been invaluable. I think there
was a much earlier posting that indicated REITS could be as
troublesome at tax time as MLPs. Since we have several
REITs on our watch list, can anyone verify from personal
experience that REITs are indeed the same problem?

Sherry Byrnes
Dear Sherry,

It is good to know that you are asking this question prior to
making an investment like this. I think it is very important that
everyone understand that certain investment types mean more
complicated tax issues to deal with. This can make them more expensive
to own if professional help is needed to fill out the forms required
to comply with tax requirements. There are lots of things out there you can
invest in. You cannot expect to account and prepare proper
partnership tax documents for all of them using a $99 a year program.

The problem with REIT's (and MLP's) is that accounting and preparing
taxes for them is not part of your bivio service. Therefore, if you invest in them you
have several choices:

1. Learn about their tax requirements and how it will impact your partnership accounting
        records and do the accounting and fill in the tax forms
        required manually.
2. Hope that you can find free accounting help from someone on this list
        during tax season and that the particular REIT you invest in does
        not impact your partnership accounting in a way that bivio does not track.
3. Pay an accountant to do your partnership accounting and prepare your club tax forms.

The reason everyone involved with club accounting recommends that your club stay away from these
investments
is that the level of income that clubs usually receive is nowhere near high
enough to cover the level of hassle you have to deal with at tax time.

I'm very happy to be able to tell you these things prior to you making a purchase and
I salute you for taking the time to investigate what you might be getting into.
Being in a club is about learning to invest and part of what everyone needs to learn
about investing is the tax issues they will need to deal with for each different
investment type. It doesn't help to invest to make money and then have to give your
gains to tax preparers to make sure you comply with IRS rules.

I'll get off my soapbox now.

:)

   Laurie Frederiksen
REITs are not "the same" problem, but a similar problem. Much of the information you need to complete your taxes isn't available until after the end of the tax year and requires you to go back and edit previous transactions.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
In a message dated 03/16/10 10:02:18 Eastern Daylight Time, foxmoor@bivio.com writes:
The recent posts about the difficulty with investment clubs
owning MLPs at tax time has been invaluable.  I think there
was a much earlier posting that indicated REITS could be as
troublesome at tax time as MLPs.  Since we have several
REITs on our watch list, can anyone verify from personal
experience that REITs are indeed the same problem?
 
 
 Just want to thank you and Ira for providing such terrific support....

Sherry Byrnes
-------------- Original message from "Laurie Frederiksen" <laurie@bivio.biz>: --------------


> Dear Sherry,
>
> It is good to know that you are asking this question prior to
> making an investment like this. I think it is very important that
> everyone understand that certain investment types mean more
> complicated tax issues to deal with. This can make them more expensive
> to own if professional help is needed to fill out the forms required
> to comply with tax requirements. There are lots of things out there you can
> invest in. You cannot expect to account and prepare proper
> partnership tax documents for all of them using a $99 a year program.
>
> The problem with REIT's (and MLP's) is that accounting and preparing taxes for them is not part of your bivio service. Therefore, if you invest in
> them you
> have several choices:
> 1. Learn about their tax requirements and how it will impact your partnership
> accounting
> records and do the accounting and fill in the tax forms
> required manually.
> 2. Hope that you can find free accounting help from someone on this list
> during tax season and that the particular REIT you invest in does
> not impact your partnership accounting in a way that bivio does not
> track.
> 3. Pay an accountant to do your partnership accounting and prepare your club
> tax forms.
>
> The reason everyone involved with club accounting recommends that your club stay
> away from these
> investments
> is that the level of income that clubs usually receive is nowhere near high
> enough to cover the level of hassle you have to deal with at tax time.
>
> I'm very happy to be able to tell you these things prior to you making a
> purchase and
> I salute you for taking the time to investigate what you might be getting into.
> Being in a club is about learning to invest and part of what everyone needs to
> learn
> about investing is the tax issues they will need to deal with for each different
> investment type. It doesn't help to invest to make money and then have to give
> your
> gains to tax preparers to make sure you comply with IRS rules.
>
> I'll get off my soapbox now.
>
> :)
>
> Laurie Frederiksen
>
>
>
>
>
>
>
Hi Laurie,

This does not have anything to do with the REIT interest.
I just want you to know that Sherry passed away about an
year and a half ago. My name is Maggie. I am the club
treasurer have been for about 14 years. I am also the club
administrator for this account. Thank you for being
personable in your address. I just want you to make the
change for your records.

Maggie Quinn


Laurie Frederiksen wrote:
> Dear Sherry,
>
> It is good to know that you are asking this question prior to
> making an investment like this. I think it is very important that
> everyone understand that certain investment types mean more
> complicated tax issues to deal with. This can make them more expensive
> to own if professional help is needed to fill out the forms required
> to comply with tax requirements. There are lots of things out there you can
> invest in. You cannot expect to account and prepare proper
> partnership tax documents for all of them using a $99 a year program.
>
> The problem with REIT's (and MLP's) is that accounting and preparing
> taxes for them is not part of your bivio service. Therefore, if you invest in them you
> have several choices:
>
> 1. Learn about their tax requirements and how it will impact your partnership accounting
> records and do the accounting and fill in the tax forms
> required manually.
> 2. Hope that you can find free accounting help from someone on this list
> during tax season and that the particular REIT you invest in does
> not impact your partnership accounting in a way that bivio does not track.
> 3. Pay an accountant to do your partnership accounting and prepare your club tax forms.
>
> The reason everyone involved with club accounting recommends that your club stay away from these
> investments
> is that the level of income that clubs usually receive is nowhere near high
> enough to cover the level of hassle you have to deal with at tax time.
>
> I'm very happy to be able to tell you these things prior to you making a purchase and
> I salute you for taking the time to investigate what you might be getting into.
> Being in a club is about learning to invest and part of what everyone needs to learn
> about investing is the tax issues they will need to deal with for each different
> investment type. It doesn't help to invest to make money and then have to give your
> gains to tax preparers to make sure you comply with IRS rules.
>
> I'll get off my soapbox now.
>
> :)
>
> Laurie Frederiksen
I love your cautionary answer, Laurie. What about special tax reporting for ETFs?

On Sat, Apr 3, 2010 at 10:19 AM, Margaret M. Quinn <lquinn@bivio.com> wrote:
Hi Laurie,

This does not have anything to do with the REIT interest.
I just want you to know that Sherry passed away about an
year and a half ago. My name is Maggie. I am the club
treasurer have been for about 14 years. I am also the club
administrator for this account. Thank you for being
personable in your address. I just want you to make the
change for your records.

Maggie Quinn


Laurie Frederiksen wrote:
> Dear Sherry,
>
> It is good to know that you are asking this question prior to
> making an investment like this. I think it is very important that
> everyone understand that certain investment types mean more
> complicated tax issues to deal with. This can make them more expensive
> to own if professional help is needed to fill out the forms required
> to comply with tax requirements. There are lots of things out there you can
> invest in. You cannot expect to account and prepare proper
> partnership tax documents for all of them using a $99 a year program.
>
> The problem with REIT's (and MLP's) is that accounting and preparing
> taxes for them is not part of your bivio service. Therefore, if you invest in them you
> have several choices:
>
> 1. Learn about their tax requirements and how it will impact your partnership accounting
> records and do the accounting and fill in the tax forms
> required manually.
> 2. Hope that you can find free accounting help from someone on this list
> during tax season and that the particular REIT you invest in does
> not impact your partnership accounting in a way that bivio does not track.
> 3. Pay an accountant to do your partnership accounting and prepare your club tax forms.
>
> The reason everyone involved with club accounting recommends that your club stay away from these
> investments
> is that the level of income that clubs usually receive is nowhere near high
> enough to cover the level of hassle you have to deal with at tax time.
>
> I'm very happy to be able to tell you these things prior to you making a purchase and
> I salute you for taking the time to investigate what you might be getting into.
> Being in a club is about learning to invest and part of what everyone needs to learn
> about investing is the tax issues they will need to deal with for each different
> investment type. It doesn't help to invest to make money and then have to give your
> gains to tax preparers to make sure you comply with IRS rules.
>
> I'll get off my soapbox now.
>
> :)
>
> Laurie Frederiksen

Hi Maggie,

I am sorry to hear about your friend.  I think that having a club member pass away must be a very difficult thing to deal with when you are in a club.

You bring up something that others may be interested in when it comes to this list.   It is a public email list.  Anyone can join, and, if you are a member,  when you send an email to the list it goes to all the members.  I responded to the Sherry who sent the original email and my response went to everyone on the list.  The idea is that we can learn from each others questions and the answers that are given to them.

While I did address my answer to the original Sherry who asked the question,  it was not the Sherry who used to be a member of your club.    Since the question was asked on the public list,  we assume everyone knows the answers will be shared also.  This is a good thing.  Usually if one person has a question,  others have the same question.

Sometimes those of us that have been doing this for a while forget the questions we had when we started.  It is good to have others remind us of them again so we can make sure that new people coming in learn what they need to to be effective club treasurers and to get the most out of their bivio subscriptions.

We are all teachers and we are all students here. 

Thank you for being part of this list and providing your input to others in this community.  Don’t worry that we have your contact information incorrect.  I did double check and it looks like you’re set up fine.

        Laurie Frederiksen

 Maggie,

I'm also very sorry to hear about your friend.  But your note has made me aware that it is important to sign my full name when I post on this message board... so here goes.  I'm the former treasurer of our club and the current Bivio administrator.  We find the information available on this forum to be invaluable, i.e., my recent posting about REITs.

Sherry Byrnes
Motivated Money Makers (M3) Investment Club
-------------- Original message from "Laurie Frederiksen" <laurie@bivio.biz>: --------------

Hi Maggie,

I am sorry to hear about your friend.  I think that having a club member pass away must be a very difficult thing to deal with when you are in a club.

You bring up something that others may be interested in when it comes to this list.   It is a public email list.  Anyone can join, and, if you are a member,  when you send an email to the list it goes to all the members.  I responded to the Sherry who sent the original email and my response went to everyone on the list.  The idea is that we can learn from each others questions and the answers that are given to them.

While I did address my answer to the original Sherry who asked the question,  it was not the Sherry who used to be a member of your club.    Since the question was asked on the public list,  we assume everyone knows the answers will be shared also.  This is a good thing.  Usually if one person has a question,  others have the same question.

Sometimes those of us that have been doing this for a while forget the questions we had when we started.  It is good to have others remind us of them again so we can make sure that new people coming in learn what they need to to be effective club treasurers and to get the most out of their bivio subscriptions.

We are all teachers and we are all students here. 

Thank you for being part of this list and providing your input to others in this community.  Don’t worry that we have your contact information incorrect.  I did double check and it looks like you’re set up fine.

        Laurie Frederiksen

Dear Jeanne (and other Club Caf Members),

Good question.  I hope you and everyone else understand that I caution about these different types of investments because they increase the complexity of what needs to be done to prepare tax returns.   bivio does not provide tax reporting abilities for all of the different types of things you can invest in.  We want you to be able to have a club where you can learn to invest by making real investments and comply with IRS tax requirements without having to hire a CPA to prepare your partnership tax returns for you.    bivio provides you with a great way to file a partnership tax return easily for certain types of investments but not for others.

When it comes to ETF’s,  the question becomes, what type of ETF is it?  There are REIT ETF’s  where you would run into the same problems as if you held the REIT’s themselves.  There are US stock ETF’s which bivio can handle with no problem.  You just need to recognize that they may mean a little more work for the treasurer at tax time because you will probably not find out the qualified/non qualified split of any dividend income you receive until the end of the year.  At that point,  before you prepare your taxes, your treasurer will need to edit each dividend you have received and split it into two parts, a qualified and a non qualified portion.  It is not hard to do this but it is a little extra work that you wouldn’t have if you had just invested directly in stocks. 

I’d suggest strongly that if your club has any questions about a specific investment you are considering that you ask here prior to purchasing it.   We’d be glad to research it for you and your question may save another club from getting into something by mistake that creates tax headaches for them.

Maybe we should start a list.   Would anybody like to share what they have gotten into that they wish they hadn’t?    I know KinderMorgen comes up quite often.  It’s a popular recommendation for investors looking for fixed income but it is an MLP  and something we really can’t handle the tax reporting for.

I’ll make up a web page,  let me know what else you’d like to put on it.

            Laurie Frederiksen

KinderMorgan is an unusual entity. There are two "KinderMorgan"s. KinderMorgan Partners (KMP) is the MLP which clubs should avoid. However, there is also KinderMorgan Resources (KMR) which is a corporation which owns partnership units of KMP. The distributions from KMR are dividends and are reported on Form 1099-DIV at year end. KMR was created by KinderMorgan for the express purpose of providing a means for investors to own a piece of KinderMorgan without the tax reporting headaches.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
In a message dated 04/03/10 12:13:21 Eastern Daylight Time, laurie@bivio.biz writes:
Maybe we should start a list.   Would anybody like to share what they have gotten into that they wish they hadn’t?    I know KinderMorgen comes up quite often.  It’s a popular recommendation for investors looking for fixed income but it is an MLP  and something we really can’t handle the tax reporting for
 
 
It depends on the ETF. If the ETF is a Widely Held Fixed Investment Trust (WHFIT) it is subject to some strange reporting requirements. Two examples of WHFIT ETTs are GLD and SLV which invest in gold and silver respectively. If the ETF holds investments in companies that would create problems if owned directly, then the ETF will create a problem. The only way to know for sure is to read the ETF prospectus carefully.
 
Ira Smilovitz
Join me at InvestEd 2010
Investor Education at Its BestTM
Baltimore, MD August 6 - 8, 2010
http://www.investor-education2010.org/
 
In a message dated 04/03/10 11:31:58 Eastern Daylight Time, jeannetieken@gmail.com writes:
I love your cautionary answer, Laurie. What about special tax reporting for ETFs?