Can a Club Make a Charitable Contribution?
There have been a few inquiries, of late, relating to making charitable contributions our of an investment club.
Can an investment club make a charitable contribution? If so, how is this accomplished with existing investment club accounting software?
The first part of the question is much easier to answer than the second. Investment clubs can, indeed, make charitable contributions. These are reported on a separate line in the partnership k-1, and each partner then reports that amount on Schedule A of his/her 1040. For an investment club, a very efficient way to make a contribution is to donate appreciated stock. Members will receive credit for the fair market value of the stock, and no capital gains need be recognized.
It's the second part of the question that causes some problems. At this point, no investment club software of which I am aware has the feature of being able to record charitable donations. We had hoped that bivio would offer this for the year 2000, but other priorities took over, and this feature is still lacking.
There is a work-around, however. Not especially easy, but it will work. First, figure out if you are going to use appreciated stock or cash for the gift. Let's take the case of stock, first.
Ascertain what security will be used for the gift and how many shares. As of the date of the gift, compute how many shares each member will be contributing by multiplying the total number of shares to be given by each member's ownership percentage. In the software, make a partial withdrawal for each member, using the value and number of shares previously computed. You would designate this withdrawal as stock, not cash. At this point, the value of the club's portfolio has gone down in the amount of the gift. Write a letter to the charity, saying that the club is making a gift of so many shares of such and such company as of this date. Also specify in the letter that this gift consists of the following number of shares being contributed by each member, and show the member's name and the number of shares being given. Then write a letter [or inform] each member that they should include a donation to that charity in such and such amount on line 16 of Schedule A of their 1040.
The procedure for a cash donation is slightly easier. After the cash amount of the gift is determined, compute each member's share by applying that member's ownership percentage to the total amount. Again, make a partial withdrawal for each member, using cash. Write the letter to the charity, and again include the name and amounts of each member. Again, inform the member of the amount that they should enter on line 15 [this time] of their Schedule A.
So, there you go. It's not easy, but it will work. It may be that bivio will facilitate this feature in a future release. Having learned my lesson, I make no promises, however. bivio's direction is user-driven. If enough users indicate that they want this feature, I'm sure that management will listen.
Rip West
Saint Paul, MN