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John Kimmel
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| 01/11/2007 12:07 AM |
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| I have a tax question. I took a partial withdrawal from one of my clubs 1/3/07 for which I received mostly stock (99.8%) and the withdrawal was more than my many years worth of contributions thanks to club gains. Do I use the price the broker used on the same day I received the shares, and that date, or do I have to use the adjusted cost basis that was generated on all the lots the club transfered to me as well as the original puchase dates of those lots. I sure hope not to be taxed twice once these shares are sold. John Kimmel |
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bonnie schramm
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| 01/12/2007 8:36 AM |
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For you personal gain on the stock when you sell it - you use the price of the stock the day you joined the club, if they already owned the stock or the price the stock was purchased if it was purchased while you belonged to the club.
If you joined in 2000 and your club bought stock X for $10.00 in 2000 it is as if you bought the stock yourself, you only paid taxes (probably proportion of taxes based on ownership %) for the dividends the stock earned - you have NEVER been taxed on the capital gains for the stock - so you would not be taxed twice. So if the stock is worth $50 today - you were lucky that your club held on to it and trusted the stock, in your own portfolio you probably would have sold at $20.
I hope that helps. There is a report that is created from the NAIC online software which would tell you the stock price you need to use. It is generated at the the time of the withdrawl.
Bonnie |
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rip west
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| 01/12/2007 11:11 PM |
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John,
You should have asked the question before you made the withdrawal, but it may not be too late to rectify the situation. Taking stock in a partial withdrawal is generally not a good idea. Taking stock in a complete withdrawal is often a great idea. Let me try to explain. In a complete withdrawal, you deduct any cash received from your tax basis for your entire partnership interest. The balance, after cash is deducted, becomes your basis for the stocks received. I won't complicate this further by talking about how you allocate that basis between different blocks of stocks. It's complicated. But the thing to remember is that, with this method, you get out of your partnership with no immediate taxable income. You don't report capital gains until you sell the stock.
Partial withdrawals are an entirely different matter. Here, the stock that you receive is the basis in the hands of the partnership. With highly appreciated stocks, this can lead to unfavorable results for you, since you will have large capital gains when you sell, and probably a capital loss when you get out of the partnership, since your basis in the club will still be relatively high when you reduce it by the small cost basis of the stocks that you took. I am not saying this will always be true. It depends on the figures, but it is true that taking stock in partial withdrawals can lead to unexpected and unfortunate results.
You might explore making your partial withdrawal a total withdrawal. If you took cash for the balance of your position, making it a total withdrawal, and then at a later date reinvested the cash in the club, you might be able to salvage the situation and increase the basis of the shares that you took. It all depends on the figures.
I would be glad to talk to you about this, privately, if you wish to pursue it.
Rip West
Saint Paul, MN
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John Kimmel
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| 01/16/2007 11:22 AM |
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Thankyou for your quick reply. I knew this might be more
complicated than what my corp. CPA suggested (transfer price day of
transfer and same as date received) - TOO SIMPLE! and gov't wouldn't
get enough tax (eventually). I have the computer generated report
for the withdrawal and all 6 lots were purchased while I was a
member. What seems weird is the # of columns on the report
- fair mkt (val date), club's cost basis (all lots lower than mkt), and
partners adjusted basis (lower still). What also seems weird is
being able to use the original lots purch date - which makes most
long term gains. So I guess I'll just plug those numbers
into my brokers portfolio performance repot and make enough copies that
I don't lose the info in case of audit. John
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John Kimmel
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| 01/16/2007 11:49 AM |
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| Rip, I wish I had had more time to pre-plan better. This club I was president of last year always uses stock when they can and especially on large amounts and not at the discretion of the member. We had some members do full withdrawals and rejoin but we were told that was for their personal tax reasons at the time. I already had this same stock in my personal portfolio, but now am unbalanced for my personal comfort level on both a company and sector basis. I know I will have to sell some lots, and fortunately they will now be long term and some 5+ year (and I don't mind the tax at those rates). My church club (only 3 yrs old) always uses cash when a member dies or does a ful withdrawal and we'll probably stay that way as long as possible for simpicity until we have lots of gains or the dollars get too large to cover from a month or two's member investments. Ther I will probably be treasurer for life, a job I don't think anyone should do without COMUTERIZED ACCOUNTING of one sort or another. John |
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