Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?
Mark Eckman on
Cindy - When the club sells you all share the gain or loss. Withdrawals are completely separate transactions and never associated with the sale of a stock.
Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?
--
Mark Eckman
Marlon Orozco on
Cindy,
Mark is correct. With our club we usually set up a tax strategy meeting around November to advise everyone where we stand. This helps us understand our tax liability at the end of the year and plan for following year.
One method you can utilized to minimize capital gain is to use LIFO instead of FIFO. I know bivio only supports FIFO so this will require a lot of adjustments from the Treasurer's end.
Best Regards,
Marlon Orozco
Stock Hats Investment Club
Sent from my iPhone
On Sep 12, 2020, at 5:37 PM, Mark Eckman via bivio.com <user*24054700001@bivio.com> wrote:
Cindy - When the club sells you all share the gain or loss. Withdrawals are completely separate transactions and never associated with the sale of a stock.
Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?
--
Mark Eckman
cindy gerke on
The tax rules were changed a few years ago and you can no longer chose which lots to sell. FIFO only and all members share capital gains or loses when selling.
We now transfer a departing member their percentage of shares in stocks with high gains. We can pick lots to transfer and member pays capital gains taxes when they sell instead of all members being taxed.
Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?
ira smilovitz on
Unfortunately, there has been quite a bit of misinformation presented in this thread. About the only correct thing was that you cannot allocate a gain (or loss) to a subset of your membership. If a stock is sold, all members share in the gain/loss in proportion to their ownership share of the club.
Bivio can handle FIFO, LIFO, or specific lot designations for the sale of stock. The software is programmed to assume FIFO. If you choose anything else, the treasurer has to manually edit the sale transaction within bivio to identify the actual shares sold.
A treasurer does not have to make any adjustments to cost basis (or anything else) if shares are given as part of a withdrawal - regardless of whether it is a partial or full withdrawal. The key difference between giving stock as part of partial withdrawal vs. a full withdrawal is that the cost basis of the shares in the hands of the member receiving it is different. In a full withdrawal, the cost basis is the same as that member's tax basis in the club less any cash received as part of the withdrawal. This is NOT the same cost basis as the club's cost basis in these shares.This means that the withdrawing member will have the same tax liability whether receiving cash or stock.
In a partial withdrawal, the members assumes the same cost basis as the club had in the shares. If highly appreciated shares are given, this will accelerate the recognition of capital gain if the shares are sold by the member receiving them. In exchange, this member will have a smaller capital gain (orand market value. perhaps even a loss) when they ultimately withdraw fully from the club. Conversely, if the member is giving losing shares, which are then sold immediately, the member gets a capital loss which will be offset by a larger capital gain when she fully withdraws from the club.
A way to visualize this is to look at your member status report. The difference between your tax basis and market value is your capital gain or loss in the club. (This is only approximate as there are some current year adjustments that may need to be made to your tax basis.) When you take a full withdrawal, you will pay tax on that gain. If you take a partial withdrawal,, You will be taking part of your cost basis and part of your market value out of the club. If you take cash, the two parts you are taking are equal and you don't pay any tax as long as you still have some tax basis left in the club. If you take stock, you take an amount of tax basis that is different from the amount of market value you receive. The difference between the two parts is taxed now, but the total of "taxed now" and "taxed later" remains constant.
The tax rules were changed a few years ago and you can no longer chose which lots to sell. FIFO only and all members share capital gains or loses when selling.
We now transfer a departing member their percentage of shares in stocks with high gains. We can pick lots to transfer and member pays capital gains taxes when they sell instead of all members being taxed.
Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?
RANDALL FINE on
Hi Ira,
Thank you for this email you have explained so...much you make it easy to understand, so mush of this I did not know.
Thanks Again, Mary
On 09/12/2020 11:59 PM ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:
Unfortunately, there has been quite a bit of misinformation presented in this thread. About the only correct thing was that you cannot allocate a gain (or loss) to a subset of your membership. If a stock is sold, all members share in the gain/loss in proportion to their ownership share of the club.
Bivio can handle FIFO, LIFO, or specific lot designations for the sale of stock. The software is programmed to assume FIFO. If you choose anything else, the treasurer has to manually edit the sale transaction within bivio to identify the actual shares sold.
A treasurer does not have to make any adjustments to cost basis (or anything else) if shares are given as part of a withdrawal - regardless of whether it is a partial or full withdrawal. The key difference between giving stock as part of partial withdrawal vs. a full withdrawal is that the cost basis of the shares in the hands of the member receiving it is different. In a full withdrawal, the cost basis is the same as that member's tax basis in the club less any cash received as part of the withdrawal. This is NOT the same cost basis as the club's cost basis in these shares.This means that the withdrawing member will have the same tax liability whether receiving cash or stock.
In a partial withdrawal, the members assumes the same cost basis as the club had in the shares. If highly appreciated shares are given, this will accelerate the recognition of capital gain if the shares are sold by the member receiving them. In exchange, this member will have a smaller capital gain (orand market value. perhaps even a loss) when they ultimately withdraw fully from the club. Conversely, if the member is giving losing shares, which are then sold immediately, the member gets a capital loss which will be offset by a larger capital gain when she fully withdraws from the club.
A way to visualize this is to look at your member status report. The difference between your tax basis and market value is your capital gain or loss in the club. (This is only approximate as there are some current year adjustments that may need to be made to your tax basis.) When you take a full withdrawal, you will pay tax on that gain. If you take a partial withdrawal,, You will be taking part of your cost basis and part of your market value out of the club. If you take cash, the two parts you are taking are equal and you don't pay any tax as long as you still have some tax basis left in the club. If you take stock, you take an amount of tax basis that is different from the amount of market value you receive. The difference between the two parts is taxed now, but the total of "taxed now" and "taxed later" remains constant.
The tax rules were changed a few years ago and you can no longer chose which lots to sell. FIFO only and all members share capital gains or loses when selling.
We now transfer a departing member their percentage of shares in stocks with high gains. We can pick lots to transfer and member pays capital gains taxes when they sell instead of all members being taxed.
Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?
Margaret Wentworth on
Ira,
Your answer was so clear and comprehensive that I saved it and printed out a copy to keep in my treasurer's files. Our club has been in existence since 1998 and some of us now have sizable holdings and a yearning to travel when the global all-clear is sounded. I bet I will have many occasions to thank you for this guidance.
Thanks to Laurie and Ira and the rest of the Bivio staff, who are essential to the keeping of accurate and full records.
Unfortunately, there has been quite a bit of misinformation presented in this thread. About the only correct thing was that you cannot allocate a gain (or loss) to a subset of your membership. If a stock is sold, all members share in the gain/loss in proportion to their ownership share of the club.
Bivio can handle FIFO, LIFO, or specific lot designations for the sale of stock. The software is programmed to assume FIFO. If you choose anything else, the treasurer has to manually edit the sale transaction within bivio to identify the actual shares sold.
A treasurer does not have to make any adjustments to cost basis (or anything else) if shares are given as part of a withdrawal - regardless of whether it is a partial or full withdrawal. The key difference between giving stock as part of partial withdrawal vs. a full withdrawal is that the cost basis of the shares in the hands of the member receiving it is different. In a full withdrawal, the cost basis is the same as that member's tax basis in the club less any cash received as part of the withdrawal. This is NOT the same cost basis as the club's cost basis in these shares.This means that the withdrawing member will have the same tax liability whether receiving cash or stock.
In a partial withdrawal, the members assumes the same cost basis as the club had in the shares. If highly appreciated shares are given, this will accelerate the recognition of capital gain if the shares are sold by the member receiving them. In exchange, this member will have a smaller capital gain (orand market value. perhaps even a loss) when they ultimately withdraw fully from the club. Conversely, if the member is giving losing shares, which are then sold immediately, the member gets a capital loss which will be offset by a larger capital gain when she fully withdraws from the club.
A way to visualize this is to look at your member status report. The difference between your tax basis and market value is your capital gain or loss in the club. (This is only approximate as there are some current year adjustments that may need to be made to your tax basis.) When you take a full withdrawal, you will pay tax on that gain. If you take a partial withdrawal,, You will be taking part of your cost basis and part of your market value out of the club. If you take cash, the two parts you are taking are equal and you don't pay any tax as long as you still have some tax basis left in the club. If you take stock, you take an amount of tax basis that is different from the amount of market value you receive. The difference between the two parts is taxed now, but the total of "taxed now" and "taxed later" remains constant.
The tax rules were changed a few years ago and you can no longer chose which lots to sell. FIFO only and all members share capital gains or loses when selling.
We now transfer a departing member their percentage of shares in stocks with high gains. We can pick lots to transfer and member pays capital gains taxes when they sell instead of all members being taxed.
Our partnership agreement currently states that, "Partial
withdrawals are not allowed".
Our group started several years ago and the members'
holdings are substantial.
The substantial holdings + the volatility of the market has
led us to rethink our own position on this topic and we
would like to make a change to our partnership rules - to
allow partial withdrawals, but want to understand some basic
tax implications before we make any changes.
We have 10 members.
If only 3 members reduce their holdings and stock is sold -
with cash distributed to only those 3 members, will all 10
members be subject to capital gains on their K1's?
If we CAN limit capital gain to those 3 members receiving
the cash, what steps need to be taken to ensure that only
those 3 members that receive the distribution will be
subject to capital gains?