Tax Allocations Methods

Each year your club will probably earn income in the form of interest, dividends and capital gains. You may also have deductible expenses. Since bivio clubs are formed or taxed as partnerships, these items must be allocated between the members of your club. The totals for your club are reported on the schedule K of your club partnership tax return. Each members portion is reported to him on a K-1 form that you provide him at tax time. You also send in a copy of each K-1 with your club tax return. Members then claim and pay taxes on their share of club income and expenses on their individual tax returns.

bivio allows your club to allocate income and expenses in one of two ways:

  • Time Based

    Time based allocations are made in proportion to each members ownership in the club on the date that each taxable item is realized by the club. It is the default and is used by most clubs.

    Since Time Based allocations are ongoing throughout the tax year, your members will be able to view their year to date allocations at any time on the Member Tax Allocations Report . You'll find it on the Reports page.

  • Snapshot

    The Snapshot methodology allocates all taxable items based on each members proportional ownership at the end of the tax year. If a member withdraws during the year, an interim allocation is also done at that time. This methodology was historically used by clubs that did their accounting by hand.

    Since Snapshot allocations are done based on proportional ownership at the end of the tax year, if your club elects Snapshot there is no partial year or interim Member Tax Allocations Report available under Reports.

Your club should agree on what method you want to use and use it consistently. The IRS allows a lot of flexibility for partnership allocations but does require that they be agreed to by all the partners and that they have "Substantial economic effect". That means they are based on business requirements, not just to try and reduce taxes. If the method is not defined, it must be made in accordance with the "Partners interest in the partnership". In a club, this can change every time member payments are recorded which is why time based is the default allocation method.

The two methods will impact all partners taxes a bit differently. They will also apply to the entire year. You can't do one for part of the year and another for another part of the year. We'd recommend you stick with the default method unless you have a specific reason to do otherwise. It has worked well for a lot of investment clubs for a lot of years!

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