Tax Time Again - "How does a club go about getting the taxes done?"
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Tax Time Again - "How does a club go about getting the taxes done?" Christine wrote...
I am the financial officer for the investment club I am in and
I have no idea how to go about getting the taxes done. What form do I fill
out?
With few very limited exceptions, for Federal Tax purposes, an
investment club (partnership) must file an informational tax return each
year. Informational return? That's right, the club
itself has no tax obligation. The tax obligations realized by the club are
allocated between and flow through the club to each of the club
members. Therefore, the club must simply provide the IRS
with the "information" pertaining to the taxable items allocated to each of its
members. This is done by completing the following...
Form 1065 U.S. Partnership Return of Income provides information about the
club as a whole.
Form 1065 (Schedule K-1) Partner's Share of Income, as the name implies,
provides information as to each members allocated share of each tax related item
such as interest, income, dividends, expenses, and realized gains /
losses. One for each person who was a member of the club at any time
during the year.
Form 1065 (Schedule D) Capital Gains and Losses (only required if the club
realized any capital gain or loss during the year)
Does every member have to fill out the
form?
The club is obligated to provided the completed appropriate forms to the
IRS and it's members. Each member then takes this information
and includes it on their individual tax return.
We are a partnership and we have not sold any stock as of
yet.
Let me throw out a note of caution. Many clubs don't realize that if
they receive cash in lieu of fractional shares resulting from a corporate stock
split, merger, or spin-off that they have in effect SOLD
stock. Therefore, don't automatically assume that you haven't
sold stock just because your club hasn't entered a sell order with your
broker.
We do not own any mutual funds. What do I
do?
After the end of the year and once you have received all of the 1099's and
account statements, verify and reconcile your club records against those
statements. Once you have insured that your club records are
complete and accurate for the tax year, complete the club tax
return. If you are using bivio, this is
easy! bivio uses your data and completes the tax
return, in its entirety, for you. Simply go to your club in
bivio and click on Accounting >
Taxes. Then follow the instructions provided on that
page. Note: Tax preparation for the 2000 tax year will be
available in bivio in early January 2001. If you are doing
your tax forms manually, go to http://www.irs.ustreas.gov/prod/forms_pubs/forms.html or
contact the IRS directly for the appropriate forms and instructions.
Once done, you'll need to send one copy of all of the forms to the
IRS, you'll need to keep one copy of all of the forms for the club's permanent
records, give each member a copy of their Form K-1, and you might need a copy of
the entire set of forms to send to the state in which the club is
formed. Each state is different. Some require a
partnership to file a tax return, others do not. You might
find the following link helpful in contact your state for specific
requirements. http://www.better-investing.org/clubs/tax99_states.html
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