Always, always, always complete the bivio member withdrawal form first. The bivio withdrawal form determines exactly how much any member is owed if the member is paid in cash, and also values the shares and determines the additional amount of cash if the withdrawal is paid in stock and cash. Pay the member the exact amount of cash shown on the Cash line of the member's withdrawal report and transfer shares from the lots specified in the report.
You can enter a practice partial or full member withdrawal entry at any time in bivio and print the withdrawal report for review. Then delete the practice member withdrawal entry by selecting Accounting>Members>member's name. Click the Delete box at the right of the withdrawal entry and scroll down and click Delete.
There are two types of tax liability upon withdrawal from the partnership. A withdrawing partner will receive a K-1 when the club's taxes are filed for the current year reporting their allocation of the club's current year realized gains/losses and dividends and interest. The withdrawing partner will also receive a bivio withdrawal report showing their gain as a partner in the club. Give both of these documents to your tax preparer.
There is a valuation problem in this. If the club has appreciated stock and the departing member has a valuation of $25000 (just using this amount for the example), then what amount would you pay them? If you give them the whole $25000 then they will not pay any tax on the stock appreciation in the portfolio which will be paid by remaining members when the stock is eventually sold or transferred to them. Would you give them the $25000 less an amount estimated for future capital gain taxes? The estimate will never be exact.
There are 2 components of tax liability for every partner:
- First, the gain / loss and interest & dividend activity of investments as realized each year
- Second, the net gain or loss of their ultimate total withdrawals versus their total capital injections to the club over the years.
Unless you adjust the valuation of the cash withdrawal for the first type of tax I note above, they will not be accountable for it and the remaining members will ultimately absorb the amount.
The best solution is to follow your Partnership Agreement and if it is in cash, sell some of the holdings to generate the needed funds. Keep it simple!!!
I know this has taken a bit of a tangent from the original question, but I wanted to caution that this approach does not need to (nor should it) happen "outside the walls of
the club." If you have member(s) who are willing to "buy in" the funding necessary to cover a withdrawing member, that shouldn't require anything special in the bylaws. Essentially, existing member(s) invest $20K into the club and instead of investing those
funds, you use the money to effect a cash withdrawal to the departing member. It's as simple as that (the hard part is whether you have existing members willing and able to pony up $20K).
If your partnership agreement has a cap on the percentage ownership any one member can have, just be sure not to violate that provision. Otherwise, it's no different than having
enough cash on hand to pay out a departing partner - you simply need enough people willing to invest that much money on short notice rather than selling off existing stocks. This approach is an option whether you need to come up with $2K or $20K for a withdrawal.
The existing members putting new money in receive units in the club just like they would with any other monthly investment, and the departing member's cash withdrawal is handled like any other cash withdrawal. There is no tax impact to the remaining members
in this scenario - only the departing member.
Is it at all possible that your club bylaws did (or could be modified to) allow for remaining member(s) to buy out the departing member with OUTSIDE funds?
This is how we anticipated this scenario. Assuming that one or more of the existing members has the $20k to absorb the departing member you can just update the remaining member(s) basis as appropriate. The buyout happens outside the walls
of the club. There are no stock transactions and no tax impact on the remaining members or the club. The entire tax impact is on the departing member who presumably is expecting it. I am not a tax advisor or lawyer. Consult a tax professional and get legal
advice. May cause drowsiness. Do not operate heavy machinery.
If you sell any stock before the withdrawal date, every member of the club will report their proportional share of the gains on their 2025 personal tax return.
If you give stock, and this is not a full withdrawal, the member receiving the stock will assume the club's cost basis in the shares. This could create more or less capital gain when the shares are sold than a full withdrawal on the same
date. The "good" news, if there is any, is that their final capital gain (or loss) on their final withdrawal will be adjusted to account for any accelerated gain from the partial withdrawal.
If you give stock and this is a full withdrawal, the withdrawing member assumes an adjusted cost basis in the shares received which is equal to their tax basis in the club. For the remaining members, their proportional share of the capital
gains (had that stock been sold) is locked away and won't be reported until each member makes a full withdrawal from the club.
The foregoing is somewhat simplified as it ignores the treatment of any cash received in the withdrawal.
I need basics. A member is requesting a substantial amount of her money. Not in stocks but in cash. We will have to decide which stock or stocks to sell to come up with $20,000. We have made great decisions on stocks, everything but one
is a gain in dollar value as well as dividends. Which means capital gains. Is each member be required to pay capital gains on their taxes or is it just the member who is requesting the payment?
Schwab doesn't allow shares to be distributed to members. The only alternative for transferring stock to members and avoiding the IRMAA adjustment will be to switch your broker to another one that allows stock transfers to members. After
the transfer to the new broker you can disband and distribute the stocks and cash. The individual members now have the choice to sell the amount of stocks each year to avoid the IRMAA and higher tax on capital gains.
Could you please provide the Schwab form number. You are the first investment club that has been able to perform a stock transfer to a member that has reported through club cafe. We have been told that Schwab will not transfer stock from an investment
Club to a member.
Our club, The Bear Trap Co., switched to Schwab when TD Ameritrade ended a few years ago. We have given stock transfers to a member twice in the past year. Before that our experience
was to sell stock(s) to give to a member withdrawing a portion of their club shares or a complete withdrawal. No issues with Schwab. We do have to fill out a form and the two co-signers in our club (Treasurer and Assistant Treasurer) have to sign. We are
lucky to have a Schwab office nearby where we drop off the form.
Like many clubs, we are planning to closedown this year.
Just members getting older. We are with Schwab with
checking privileges. Obviously, it is simpler to sell
everything and distribute the cash. But some members have
large capital gains and would prefer stock. I have been the
long time treasurer and have been reading the conversations
on here for ideas.
I have some specific questions.
Must all distributions be the same for each member, that is
all cash or all stock?
Is Schwab allowing stock transfers? Hard or easy to work
with them?
Has anyone considered the effect of these large capital
gains on the IRMAA adjustment (Medicare)? Any work around
ideas.
If our club distributes shares, I am considering using a CPA
to do things properly. Or is that overkill and I should be
able to do myself?
What about taking some capital gains this year and doing the
final shutdown next year? Any advantages?
Thanks for your thoughts. I am sure I will be posting again
soon.
Anne Weeks
My understanding is that Bivio's Withdrawal form figures that all out. When stock was transferred to me, my cost basis was the club's basis (very low). I had to call my broker to adjust the 'higher' appreciated cost basis.
There is a valuation problem in this. If the club has appreciated stock and the departing member has a valuation of $25000 (just using this amount for the example), then what amount would you pay them? If you give them the whole $25000 then they will not pay any tax on the stock appreciation in the portfolio which will be paid by remaining members when the stock is eventually sold or transferred to them. Would you give them the $25000 less an amount estimated for future capital gain taxes? The estimate will never be exact.
There are 2 components of tax liability for every partner:
- First, the gain / loss and interest & dividend activity of investments as realized each year
- Second, the net gain or loss of their ultimate total withdrawals versus their total capital injections to the club over the years.
Unless you adjust the valuation of the cash withdrawal for the first type of tax I note above, they will not be accountable for it and the remaining members will ultimately absorb the amount.
The best solution is to follow your Partnership Agreement and if it is in cash, sell some of the holdings to generate the needed funds. Keep it simple!!!
I know this has taken a bit of a tangent from the original question, but I wanted to caution that this approach does not need to (nor should it) happen "outside the walls of
the club." If you have member(s) who are willing to "buy in" the funding necessary to cover a withdrawing member, that shouldn't require anything special in the bylaws. Essentially, existing member(s) invest $20K into the club and instead of investing those
funds, you use the money to effect a cash withdrawal to the departing member. It's as simple as that (the hard part is whether you have existing members willing and able to pony up $20K).
If your partnership agreement has a cap on the percentage ownership any one member can have, just be sure not to violate that provision. Otherwise, it's no different than having
enough cash on hand to pay out a departing partner - you simply need enough people willing to invest that much money on short notice rather than selling off existing stocks. This approach is an option whether you need to come up with $2K or $20K for a withdrawal.
The existing members putting new money in receive units in the club just like they would with any other monthly investment, and the departing member's cash withdrawal is handled like any other cash withdrawal. There is no tax impact to the remaining members
in this scenario - only the departing member.
Is it at all possible that your club bylaws did (or could be modified to) allow for remaining member(s) to buy out the departing member with OUTSIDE funds?
This is how we anticipated this scenario. Assuming that one or more of the existing members has the $20k to absorb the departing member you can just update the remaining member(s) basis as appropriate. The buyout happens outside the walls
of the club. There are no stock transactions and no tax impact on the remaining members or the club. The entire tax impact is on the departing member who presumably is expecting it. I am not a tax advisor or lawyer. Consult a tax professional and get legal
advice. May cause drowsiness. Do not operate heavy machinery.
If you sell any stock before the withdrawal date, every member of the club will report their proportional share of the gains on their 2025 personal tax return.
If you give stock, and this is not a full withdrawal, the member receiving the stock will assume the club's cost basis in the shares. This could create more or less capital gain when the shares are sold than a full withdrawal on the same
date. The "good" news, if there is any, is that their final capital gain (or loss) on their final withdrawal will be adjusted to account for any accelerated gain from the partial withdrawal.
If you give stock and this is a full withdrawal, the withdrawing member assumes an adjusted cost basis in the shares received which is equal to their tax basis in the club. For the remaining members, their proportional share of the capital
gains (had that stock been sold) is locked away and won't be reported until each member makes a full withdrawal from the club.
The foregoing is somewhat simplified as it ignores the treatment of any cash received in the withdrawal.
I need basics. A member is requesting a substantial amount of her money. Not in stocks but in cash. We will have to decide which stock or stocks to sell to come up with $20,000. We have made great decisions on stocks, everything but one
is a gain in dollar value as well as dividends. Which means capital gains. Is each member be required to pay capital gains on their taxes or is it just the member who is requesting the payment?
Schwab doesn't allow shares to be distributed to members. The only alternative for transferring stock to members and avoiding the IRMAA adjustment will be to switch your broker to another one that allows stock transfers to members. After
the transfer to the new broker you can disband and distribute the stocks and cash. The individual members now have the choice to sell the amount of stocks each year to avoid the IRMAA and higher tax on capital gains.
Could you please provide the Schwab form number. You are the first investment club that has been able to perform a stock transfer to a member that has reported through club cafe. We have been told that Schwab will not transfer stock from an investment
Club to a member.
Our club, The Bear Trap Co., switched to Schwab when TD Ameritrade ended a few years ago. We have given stock transfers to a member twice in the past year. Before that our experience
was to sell stock(s) to give to a member withdrawing a portion of their club shares or a complete withdrawal. No issues with Schwab. We do have to fill out a form and the two co-signers in our club (Treasurer and Assistant Treasurer) have to sign. We are
lucky to have a Schwab office nearby where we drop off the form.
Like many clubs, we are planning to closedown this year.
Just members getting older. We are with Schwab with
checking privileges. Obviously, it is simpler to sell
everything and distribute the cash. But some members have
large capital gains and would prefer stock. I have been the
long time treasurer and have been reading the conversations
on here for ideas.
I have some specific questions.
Must all distributions be the same for each member, that is
all cash or all stock?
Is Schwab allowing stock transfers? Hard or easy to work
with them?
Has anyone considered the effect of these large capital
gains on the IRMAA adjustment (Medicare)? Any work around
ideas.
If our club distributes shares, I am considering using a CPA
to do things properly. Or is that overkill and I should be
able to do myself?
What about taking some capital gains this year and doing the
final shutdown next year? Any advantages?
Thanks for your thoughts. I am sure I will be posting again
soon.
Anne Weeks
ira smilovitz on
Roman,
This is an incorrect interpretation of the tax code. When a member withdraws (fully) they pay tax on the difference between their value as of the withdrawal date and their tax basis in the club, which consists of (their contributions to the club plus their share of their historical share of the income, expenses, gains and losses of the club during their membership, plus any income, expenses and gain/loss during the current year, minus any previous withdrawals) and any income that will be reported on their final K-1. If the club sells stock to fund the withdrawal, the K-1 will show the gains associated with the withdrawal sales, but the tax basis for the withdrawal gain calculation will increase by the amount of gain now reported on the K-1. the net result is no difference.
Similarly, the remaining members of the club may recognize capital gains earlier (if stock is sold for the withdrawal). but their overall gain over their tenure in the club is unaffected. (Whatever capital gains are reported now for stock sales will be offset when each member withdraws from the club.
There is a valuation problem in this. If the club has appreciated stock and the departing member has a valuation of $25000 (just using this amount for the example), then what amount would you pay them? If you give them the whole $25000 then they will not pay any tax on the stock appreciation in the portfolio which will be paid by remaining members when the stock is eventually sold or transferred to them. Would you give them the $25000 less an amount estimated for future capital gain taxes? The estimate will never be exact.
There are 2 components of tax liability for every partner:
- First, the gain / loss and interest & dividend activity of investments as realized each year
- Second, the net gain or loss of their ultimate total withdrawals versus their total capital injections to the club over the years.
Unless you adjust the valuation of the cash withdrawal for the first type of tax I note above, they will not be accountable for it and the remaining members will ultimately absorb the amount.
The best solution is to follow your Partnership Agreement and if it is in cash, sell some of the holdings to generate the needed funds. Keep it simple!!!
I know this has taken a bit of a tangent from the original question, but I wanted to caution that this approach does not need to (nor should it) happen "outside the walls of
the club." If you have member(s) who are willing to "buy in" the funding necessary to cover a withdrawing member, that shouldn't require anything special in the bylaws. Essentially, existing member(s) invest $20K into the club and instead of investing those
funds, you use the money to effect a cash withdrawal to the departing member. It's as simple as that (the hard part is whether you have existing members willing and able to pony up $20K).
If your partnership agreement has a cap on the percentage ownership any one member can have, just be sure not to violate that provision. Otherwise, it's no different than having
enough cash on hand to pay out a departing partner - you simply need enough people willing to invest that much money on short notice rather than selling off existing stocks. This approach is an option whether you need to come up with $2K or $20K for a withdrawal.
The existing members putting new money in receive units in the club just like they would with any other monthly investment, and the departing member's cash withdrawal is handled like any other cash withdrawal. There is no tax impact to the remaining members
in this scenario - only the departing member.
Is it at all possible that your club bylaws did (or could be modified to) allow for remaining member(s) to buy out the departing member with OUTSIDE funds?
This is how we anticipated this scenario. Assuming that one or more of the existing members has the $20k to absorb the departing member you can just update the remaining member(s) basis as appropriate. The buyout happens outside the walls
of the club. There are no stock transactions and no tax impact on the remaining members or the club. The entire tax impact is on the departing member who presumably is expecting it. I am not a tax advisor or lawyer. Consult a tax professional and get legal
advice. May cause drowsiness. Do not operate heavy machinery.
If you sell any stock before the withdrawal date, every member of the club will report their proportional share of the gains on their 2025 personal tax return.
If you give stock, and this is not a full withdrawal, the member receiving the stock will assume the club's cost basis in the shares. This could create more or less capital gain when the shares are sold than a full withdrawal on the same
date. The "good" news, if there is any, is that their final capital gain (or loss) on their final withdrawal will be adjusted to account for any accelerated gain from the partial withdrawal.
If you give stock and this is a full withdrawal, the withdrawing member assumes an adjusted cost basis in the shares received which is equal to their tax basis in the club. For the remaining members, their proportional share of the capital
gains (had that stock been sold) is locked away and won't be reported until each member makes a full withdrawal from the club.
The foregoing is somewhat simplified as it ignores the treatment of any cash received in the withdrawal.
I need basics. A member is requesting a substantial amount of her money. Not in stocks but in cash. We will have to decide which stock or stocks to sell to come up with $20,000. We have made great decisions on stocks, everything but one
is a gain in dollar value as well as dividends. Which means capital gains. Is each member be required to pay capital gains on their taxes or is it just the member who is requesting the payment?
Schwab doesn't allow shares to be distributed to members. The only alternative for transferring stock to members and avoiding the IRMAA adjustment will be to switch your broker to another one that allows stock transfers to members. After
the transfer to the new broker you can disband and distribute the stocks and cash. The individual members now have the choice to sell the amount of stocks each year to avoid the IRMAA and higher tax on capital gains.
Could you please provide the Schwab form number. You are the first investment club that has been able to perform a stock transfer to a member that has reported through club cafe. We have been told that Schwab will not transfer stock from an investment
Club to a member.
Our club, The Bear Trap Co., switched to Schwab when TD Ameritrade ended a few years ago. We have given stock transfers to a member twice in the past year. Before that our experience
was to sell stock(s) to give to a member withdrawing a portion of their club shares or a complete withdrawal. No issues with Schwab. We do have to fill out a form and the two co-signers in our club (Treasurer and Assistant Treasurer) have to sign. We are
lucky to have a Schwab office nearby where we drop off the form.
Like many clubs, we are planning to closedown this year.
Just members getting older. We are with Schwab with
checking privileges. Obviously, it is simpler to sell
everything and distribute the cash. But some members have
large capital gains and would prefer stock. I have been the
long time treasurer and have been reading the conversations
on here for ideas.
I have some specific questions.
Must all distributions be the same for each member, that is
all cash or all stock?
Is Schwab allowing stock transfers? Hard or easy to work
with them?
Has anyone considered the effect of these large capital
gains on the IRMAA adjustment (Medicare)? Any work around
ideas.
If our club distributes shares, I am considering using a CPA
to do things properly. Or is that overkill and I should be
able to do myself?
What about taking some capital gains this year and doing the
final shutdown next year? Any advantages?
Thanks for your thoughts. I am sure I will be posting again
soon.
Anne Weeks
Roman Geletkanycz on
Ira
I would defer to you on taxes as I am not an expert. The reason I made the statement in my original email is because when I run the Member Status report for our club, there is a member who has had no contributions nor withdrawals for 2025 and yet the club has had dividends, interest and capital gains for year-to-date 2025 of roughly $7300. This member's tax basis, on the Member Status report, is the same on 6/5/2025 as it is on 12/31/2024. If the 2025 profit or loss is adjusted in the cost basis, why is it not reflected on this report?
Roman
On Monday, June 9, 2025 at 04:51:53 PM EDT, ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:
Roman,
This is an incorrect interpretation of the tax code. When a member withdraws (fully) they pay tax on the difference between their value as of the withdrawal date and their tax basis in the club, which consists of (their contributions to the club plus their share of their historical share of the income, expenses, gains and losses of the club during their membership, plus any income, expenses and gain/loss during the current year, minus any previous withdrawals) and any income that will be reported on their final K-1. If the club sells stock to fund the withdrawal, the K-1 will show the gains associated with the withdrawal sales, but the tax basis for the withdrawal gain calculation will increase by the amount of gain now reported on the K-1. the net result is no difference.
Similarly, the remaining members of the club may recognize capital gains earlier (if stock is sold for the withdrawal). but their overall gain over their tenure in the club is unaffected. (Whatever capital gains are reported now for stock sales will be offset when each member withdraws from the club.
There is a valuation problem in this. If the club has appreciated stock and the departing member has a valuation of $25000 (just using this amount for the example), then what amount would you pay them? If you give them the whole $25000 then they will not pay any tax on the stock appreciation in the portfolio which will be paid by remaining members when the stock is eventually sold or transferred to them. Would you give them the $25000 less an amount estimated for future capital gain taxes? The estimate will never be exact.
There are 2 components of tax liability for every partner:
- First, the gain / loss and interest & dividend activity of investments as realized each year
- Second, the net gain or loss of their ultimate total withdrawals versus their total capital injections to the club over the years.
Unless you adjust the valuation of the cash withdrawal for the first type of tax I note above, they will not be accountable for it and the remaining members will ultimately absorb the amount.
The best solution is to follow your Partnership Agreement and if it is in cash, sell some of the holdings to generate the needed funds. Keep it simple!!!
I know this has taken a bit of a tangent from the original question, but I wanted to caution that this approach does not need to (nor should it) happen "outside the walls of
the club." If you have member(s) who are willing to "buy in" the funding necessary to cover a withdrawing member, that shouldn't require anything special in the bylaws. Essentially, existing member(s) invest $20K into the club and instead of investing those
funds, you use the money to effect a cash withdrawal to the departing member. It's as simple as that (the hard part is whether you have existing members willing and able to pony up $20K).
If your partnership agreement has a cap on the percentage ownership any one member can have, just be sure not to violate that provision. Otherwise, it's no different than having
enough cash on hand to pay out a departing partner - you simply need enough people willing to invest that much money on short notice rather than selling off existing stocks. This approach is an option whether you need to come up with $2K or $20K for a withdrawal.
The existing members putting new money in receive units in the club just like they would with any other monthly investment, and the departing member's cash withdrawal is handled like any other cash withdrawal. There is no tax impact to the remaining members
in this scenario - only the departing member.
Is it at all possible that your club bylaws did (or could be modified to) allow for remaining member(s) to buy out the departing member with OUTSIDE funds?
This is how we anticipated this scenario. Assuming that one or more of the existing members has the $20k to absorb the departing member you can just update the remaining member(s) basis as appropriate. The buyout happens outside the walls
of the club. There are no stock transactions and no tax impact on the remaining members or the club. The entire tax impact is on the departing member who presumably is expecting it. I am not a tax advisor or lawyer. Consult a tax professional and get legal
advice. May cause drowsiness. Do not operate heavy machinery.
If you sell any stock before the withdrawal date, every member of the club will report their proportional share of the gains on their 2025 personal tax return.
If you give stock, and this is not a full withdrawal, the member receiving the stock will assume the club's cost basis in the shares. This could create more or less capital gain when the shares are sold than a full withdrawal on the same
date. The "good" news, if there is any, is that their final capital gain (or loss) on their final withdrawal will be adjusted to account for any accelerated gain from the partial withdrawal.
If you give stock and this is a full withdrawal, the withdrawing member assumes an adjusted cost basis in the shares received which is equal to their tax basis in the club. For the remaining members, their proportional share of the capital
gains (had that stock been sold) is locked away and won't be reported until each member makes a full withdrawal from the club.
The foregoing is somewhat simplified as it ignores the treatment of any cash received in the withdrawal.
I need basics. A member is requesting a substantial amount of her money. Not in stocks but in cash. We will have to decide which stock or stocks to sell to come up with $20,000. We have made great decisions on stocks, everything but one
is a gain in dollar value as well as dividends. Which means capital gains. Is each member be required to pay capital gains on their taxes or is it just the member who is requesting the payment?
Schwab doesn't allow shares to be distributed to members. The only alternative for transferring stock to members and avoiding the IRMAA adjustment will be to switch your broker to another one that allows stock transfers to members. After
the transfer to the new broker you can disband and distribute the stocks and cash. The individual members now have the choice to sell the amount of stocks each year to avoid the IRMAA and higher tax on capital gains.
Could you please provide the Schwab form number. You are the first investment club that has been able to perform a stock transfer to a member that has reported through club cafe. We have been told that Schwab will not transfer stock from an investment
Club to a member.
Our club, The Bear Trap Co., switched to Schwab when TD Ameritrade ended a few years ago. We have given stock transfers to a member twice in the past year. Before that our experience
was to sell stock(s) to give to a member withdrawing a portion of their club shares or a complete withdrawal. No issues with Schwab. We do have to fill out a form and the two co-signers in our club (Treasurer and Assistant Treasurer) have to sign. We are
lucky to have a Schwab office nearby where we drop off the form.
Like many clubs, we are planning to closedown this year.
Just members getting older. We are with Schwab with
checking privileges. Obviously, it is simpler to sell
everything and distribute the cash. But some members have
large capital gains and would prefer stock. I have been the
long time treasurer and have been reading the conversations
on here for ideas.
I have some specific questions.
Must all distributions be the same for each member, that is
all cash or all stock?
Is Schwab allowing stock transfers? Hard or easy to work
with them?
Has anyone considered the effect of these large capital
gains on the IRMAA adjustment (Medicare)? Any work around
ideas.
If our club distributes shares, I am considering using a CPA
to do things properly. Or is that overkill and I should be
able to do myself?
What about taking some capital gains this year and doing the
final shutdown next year? Any advantages?
Thanks for your thoughts. I am sure I will be posting again
soon.
Anne Weeks
Kolb, George on
Bivio will record the necessary basis adjustments at year end (or sooner if they withdraw).
From: club_cafe@bivio.com <club_cafe@bivio.com>
On Behalf Of Roman Geletkanycz via bivio.com Sent: Monday, June 9, 2025 9:28 PM To: club_cafe@bivio.com Subject: Re: [club_cafe] Closing club
[External Email]
Ira
I would defer to you on taxes as I am not an expert. The reason I made the statement in my original email is because when I run the Member Status report for our club, there
is a member who has had no contributions nor withdrawals for 2025 and yet the club has had dividends, interest and capital gains for year-to-date 2025 of roughly $7300. This member's tax basis, on the Member Status report, is the same on 6/5/2025 as it is
on 12/31/2024. If the 2025 profit or loss is adjusted in the cost basis, why is it not reflected on this report?
Roman
On Monday, June 9, 2025 at 04:51:53 PM EDT, ira smilovitz via bivio.com <user*2883400001@bivio.com> wrote:
Roman,
This is an incorrect interpretation of the tax code. When a member withdraws (fully) they pay tax on the difference between their value as of the withdrawal date and their tax basis in the
club, which consists of (their contributions to the club plus their share of their historical share of the income, expenses, gains and losses of the club during their membership, plus any income, expenses and gain/loss during the current year, minus any previous
withdrawals) and any income that will be reported on their final K-1. If the club sells stock to fund the withdrawal, the K-1 will show the gains associated with the withdrawal sales, but the tax basis for the withdrawal gain calculation will increase by the
amount of gain now reported on the K-1. the net result is no difference.
Similarly, the remaining members of the club may recognize capital gains earlier (if stock is sold for the withdrawal). but their overall gain over their tenure in the club is unaffected.
(Whatever capital gains are reported now for stock sales will be offset when each member withdraws from the club.
There is a valuation problem in this. If the club has appreciated stock and the departing member has a valuation of $25000 (just using this amount for the example), then
what amount would you pay them? If you give them the whole $25000 then they will not pay any tax on the stock appreciation in the portfolio which will be paid by remaining members when the stock is eventually sold or transferred to them. Would you give them
the $25000 less an amount estimated for future capital gain taxes? The estimate will never be exact.
There are 2 components of tax liability for every partner:
- First, the gain / loss and interest & dividend activity of investments as realized each year
- Second, the net gain or loss of their ultimate total withdrawals versus their total capital injections to the club over the years.
Unless you adjust the valuation of the cash withdrawal for the first type of tax I note above, they will not be accountable for it and the remaining members will ultimately
absorb the amount.
The best solution is to follow your Partnership Agreement and if it is in cash, sell some of the holdings to generate the needed funds. Keep it simple!!!
I know this has taken a bit of a tangent from the original question, but I wanted to caution that this approach does not need to (nor should it) happen "outside the walls of the club." If you
have member(s) who are willing to "buy in" the funding necessary to cover a withdrawing member, that shouldn't require anything special in the bylaws. Essentially, existing member(s) invest $20K into the club and instead of investing those funds, you use
the money to effect a cash withdrawal to the departing member. It's as simple as that (the hard part is whether you have existing members willing and able to pony up $20K).
If your partnership agreement has a cap on the percentage ownership any one member can have, just be sure not to violate that provision. Otherwise, it's no different than having enough cash on
hand to pay out a departing partner - you simply need enough people willing to invest that much money on short notice rather than selling off existing stocks. This approach is an option whether you need to come up with $2K or $20K for a withdrawal. The existing
members putting new money in receive units in the club just like they would with any other monthly investment, and the departing member's cash withdrawal is handled like any other cash withdrawal. There is no tax impact to the remaining members in this scenario
- only the departing member.
Is it at all possible that your club bylaws did (or could be modified to) allow for remaining member(s) to buy out the departing member with OUTSIDE funds?
This is how we anticipated this scenario. Assuming that one or more of the existing members has the $20k to absorb the departing member you can just update the remaining member(s) basis as
appropriate. The buyout happens outside the walls of the club. There are no stock transactions and no tax impact on the remaining members or the club. The entire tax impact is on the departing member who presumably is expecting it. I am not a tax advisor
or lawyer. Consult a tax professional and get legal advice. May cause drowsiness. Do not operate heavy machinery.
If you sell any stock before the withdrawal date, every member of the club will report their proportional share of the gains on their 2025 personal tax return.
If you give stock, and this is not a full withdrawal, the member receiving the stock will assume the club's cost basis in the shares. This could create more or less capital gain when the shares
are sold than a full withdrawal on the same date. The "good" news, if there is any, is that their final capital gain (or loss) on their final withdrawal will be adjusted to account for any accelerated gain from the partial withdrawal.
If you give stock and this is a full withdrawal, the withdrawing member assumes an adjusted cost basis in the shares received which is equal to their tax basis in the club. For the remaining
members, their proportional share of the capital gains (had that stock been sold) is locked away and won't be reported until each member makes a full withdrawal from the club.
The foregoing is somewhat simplified as it ignores the treatment of any cash received in the withdrawal.
I need basics. A member is requesting a substantial amount of her money. Not in stocks but in cash. We will have to decide which stock or stocks to sell to come up with $20,000. We have made
great decisions on stocks, everything but one is a gain in dollar value as well as dividends. Which means capital gains. Is each member be required to pay capital gains on their taxes or is it just the member who is requesting the payment?
Schwab doesn't allow shares to be distributed to members. The only alternative for transferring stock to members and avoiding the IRMAA adjustment will be to switch your broker to another
one that allows stock transfers to members. After the transfer to the new broker you can disband and distribute the stocks and cash. The individual members now have the choice to sell the amount of stocks each year to avoid the IRMAA and higher tax on capital
gains.
Could you please provide the Schwab form number. You are the first investment club that has been able to perform a stock transfer to a member that has reported through club cafe. We have
been told that Schwab will not transfer stock from an investment Club to a member.
Our club, The Bear Trap Co., switched to Schwab when TD Ameritrade ended a few years ago. We have given stock transfers to a member twice in the past year. Before that our experience
was to sell stock(s) to give to a member withdrawing a portion of their club shares or a complete withdrawal. No issues with Schwab. We do have to fill out a form and the two co-signers in our club (Treasurer and Assistant Treasurer) have to sign. We are
lucky to have a Schwab office nearby where we drop off the form.
Like many clubs, we are planning to closedown this year.
Just members getting older. We are with Schwab with
checking privileges. Obviously, it is simpler to sell
everything and distribute the cash. But some members have
large capital gains and would prefer stock. I have been the
long time treasurer and have been reading the conversations
on here for ideas.
I have some specific questions.
Must all distributions be the same for each member, that is
all cash or all stock?
Is Schwab allowing stock transfers? Hard or easy to work
with them?
Has anyone considered the effect of these large capital
gains on the IRMAA adjustment (Medicare)? Any work around
ideas.
If our club distributes shares, I am considering using a CPA
to do things properly. Or is that overkill and I should be
able to do myself?
What about taking some capital gains this year and doing the
final shutdown next year? Any advantages?
Thanks for your thoughts. I am sure I will be posting again
soon.
Anne Weeks
ira smilovitz on
Roman,
George is correct. bivio doesn't display the up-to-date tax basis in the Member Status Report in order to reduce the computational demands on the software. (Each transaction during the year needs to be allocated/apportioned to each member.) The calculations are only done when they are actually needed - when a member withdraws and at year-end to prepare tax returns. You can see this if you look at any withdrawal report. There is a section labeled "Tax Allocations" which documents the cumulative adjustment to tax basis for the current year.
I would defer to you on taxes as I am not an expert. The reason I made the statement in my original email is because when I run the Member Status report for our club, there is a member who has had no contributions nor withdrawals for 2025 and yet the club has had dividends, interest and capital gains for year-to-date 2025 of roughly $7300. This member's tax basis, on the Member Status report, is the same on 6/5/2025 as it is on 12/31/2024. If the 2025 profit or loss is adjusted in the cost basis, why is it not reflected on this report?
This is an incorrect interpretation of the tax code. When a member withdraws (fully) they pay tax on the difference between their value as of the withdrawal date and their tax basis in the club, which consists of (their contributions to the club plus their share of their historical share of the income, expenses, gains and losses of the club during their membership, plus any income, expenses and gain/loss during the current year, minus any previous withdrawals) and any income that will be reported on their final K-1. If the club sells stock to fund the withdrawal, the K-1 will show the gains associated with the withdrawal sales, but the tax basis for the withdrawal gain calculation will increase by the amount of gain now reported on the K-1. the net result is no difference.
Similarly, the remaining members of the club may recognize capital gains earlier (if stock is sold for the withdrawal). but their overall gain over their tenure in the club is unaffected. (Whatever capital gains are reported now for stock sales will be offset when each member withdraws from the club.
There is a valuation problem in this. If the club has appreciated stock and the departing member has a valuation of $25000 (just using this amount for the example), then what amount would you pay them? If you give them the whole $25000 then they will not pay any tax on the stock appreciation in the portfolio which will be paid by remaining members when the stock is eventually sold or transferred to them. Would you give them the $25000 less an amount estimated for future capital gain taxes? The estimate will never be exact.
There are 2 components of tax liability for every partner:
- First, the gain / loss and interest & dividend activity of investments as realized each year
- Second, the net gain or loss of their ultimate total withdrawals versus their total capital injections to the club over the years.
Unless you adjust the valuation of the cash withdrawal for the first type of tax I note above, they will not be accountable for it and the remaining members will ultimately absorb the amount.
The best solution is to follow your Partnership Agreement and if it is in cash, sell some of the holdings to generate the needed funds. Keep it simple!!!
I know this has taken a bit of a tangent from the original question, but I wanted to caution that this approach does not need to (nor should it) happen "outside the walls of
the club." If you have member(s) who are willing to "buy in" the funding necessary to cover a withdrawing member, that shouldn't require anything special in the bylaws. Essentially, existing member(s) invest $20K into the club and instead of investing those
funds, you use the money to effect a cash withdrawal to the departing member. It's as simple as that (the hard part is whether you have existing members willing and able to pony up $20K).
If your partnership agreement has a cap on the percentage ownership any one member can have, just be sure not to violate that provision. Otherwise, it's no different than having
enough cash on hand to pay out a departing partner - you simply need enough people willing to invest that much money on short notice rather than selling off existing stocks. This approach is an option whether you need to come up with $2K or $20K for a withdrawal.
The existing members putting new money in receive units in the club just like they would with any other monthly investment, and the departing member's cash withdrawal is handled like any other cash withdrawal. There is no tax impact to the remaining members
in this scenario - only the departing member.
Is it at all possible that your club bylaws did (or could be modified to) allow for remaining member(s) to buy out the departing member with OUTSIDE funds?
This is how we anticipated this scenario. Assuming that one or more of the existing members has the $20k to absorb the departing member you can just update the remaining member(s) basis as appropriate. The buyout happens outside the walls
of the club. There are no stock transactions and no tax impact on the remaining members or the club. The entire tax impact is on the departing member who presumably is expecting it. I am not a tax advisor or lawyer. Consult a tax professional and get legal
advice. May cause drowsiness. Do not operate heavy machinery.
If you sell any stock before the withdrawal date, every member of the club will report their proportional share of the gains on their 2025 personal tax return.
If you give stock, and this is not a full withdrawal, the member receiving the stock will assume the club's cost basis in the shares. This could create more or less capital gain when the shares are sold than a full withdrawal on the same
date. The "good" news, if there is any, is that their final capital gain (or loss) on their final withdrawal will be adjusted to account for any accelerated gain from the partial withdrawal.
If you give stock and this is a full withdrawal, the withdrawing member assumes an adjusted cost basis in the shares received which is equal to their tax basis in the club. For the remaining members, their proportional share of the capital
gains (had that stock been sold) is locked away and won't be reported until each member makes a full withdrawal from the club.
The foregoing is somewhat simplified as it ignores the treatment of any cash received in the withdrawal.
I need basics. A member is requesting a substantial amount of her money. Not in stocks but in cash. We will have to decide which stock or stocks to sell to come up with $20,000. We have made great decisions on stocks, everything but one
is a gain in dollar value as well as dividends. Which means capital gains. Is each member be required to pay capital gains on their taxes or is it just the member who is requesting the payment?
Schwab doesn't allow shares to be distributed to members. The only alternative for transferring stock to members and avoiding the IRMAA adjustment will be to switch your broker to another one that allows stock transfers to members. After
the transfer to the new broker you can disband and distribute the stocks and cash. The individual members now have the choice to sell the amount of stocks each year to avoid the IRMAA and higher tax on capital gains.
Could you please provide the Schwab form number. You are the first investment club that has been able to perform a stock transfer to a member that has reported through club cafe. We have been told that Schwab will not transfer stock from an investment
Club to a member.
Our club, The Bear Trap Co., switched to Schwab when TD Ameritrade ended a few years ago. We have given stock transfers to a member twice in the past year. Before that our experience
was to sell stock(s) to give to a member withdrawing a portion of their club shares or a complete withdrawal. No issues with Schwab. We do have to fill out a form and the two co-signers in our club (Treasurer and Assistant Treasurer) have to sign. We are
lucky to have a Schwab office nearby where we drop off the form.
Like many clubs, we are planning to closedown this year.
Just members getting older. We are with Schwab with
checking privileges. Obviously, it is simpler to sell
everything and distribute the cash. But some members have
large capital gains and would prefer stock. I have been the
long time treasurer and have been reading the conversations
on here for ideas.
I have some specific questions.
Must all distributions be the same for each member, that is
all cash or all stock?
Is Schwab allowing stock transfers? Hard or easy to work
with them?
Has anyone considered the effect of these large capital
gains on the IRMAA adjustment (Medicare)? Any work around
ideas.
If our club distributes shares, I am considering using a CPA
to do things properly. Or is that overkill and I should be
able to do myself?
What about taking some capital gains this year and doing the
final shutdown next year? Any advantages?
Thanks for your thoughts. I am sure I will be posting again
soon.
Anne Weeks