The main advantage of using stock is that you can defer capital gains that
are presently built in to some of your appreciated stocks. If you don't have
appreciated stocks, then use cash. Follow the article and I believe you will get
an idea what all the fuss is about.
Yes, that's what I'm saying.
Let's take a simple [I hope] example. Say we have 3 members in our
club - Able, Baker, and Charlie. They have each put $5,000 in, and
we purchased Stocka - 100 shares for $5,000. Assume those 100 shares
become worth $8,000. Now we have $10,000 in cash and $8,000 worth of
stock. Charlie's share is 1/3 of that or $6,000. If we simply pay
him $6,000, he will realize a capital gain of $1,000 [$6,000 -
$5,000].
Now let's assume that we later sell that stock for
the $8,000. The club will realize a gain of $3,000 [$8,000 -
$5,000]. That gain will be split among the remaining members -
$1,500 each.
Consider what has happened at this point. The
IRS has collected taxes on $4,000 [$3,000 from the club and $1,000
from Charlie]. But the only economic gain has been the $3,000 on
Stocka. That is what I mean by prepaying taxes. Able and Baker will
get an offsetting loss when they leave the club, but that may be
years down the line.
So, the conclusion is that if you own
appreciated stocks, you should use them to pay off members, even if
you have sufficient cash or if other members are willing to
contribute more cash.
There is another solution provided by the IRS to
avoid this prepayment of taxes. It is called the 754 election. Under
this election, whenever a member is paid off, any gain recognized by
him/her will be added to the basis of appreciated stocks held by the
partnership. At the present time, no investment club software on the
market supports this election. Therefore, the best way to pay off a
departing member, at present, is to use appreciated
stocks.
Yup, the link is not working. I'd like to review the article,
as well, so maybe you could re-post it?
Best Regards,
Leo
From: club_cafe@bivio.com
[mailto:club_cafe@bivio.com] On Behalf Of Andy Butler Sent:
Wednesday, May 12, 2010 11:11 PM To: The Club Cafe Subject:
Re: club_cafe: Withdrawing Member
Rip,�
Thanks for the help. �I followed the link and it gave me an error saying
the requested page is not found. �Could you just email me the article? �
The main advantage of using stock is that you can defer capital gains
that are presently built in to some of your appreciated stocks. If you don't
have appreciated stocks, then use cash. Follow the article and I believe you
will get an idea what all the fuss is about.
�
Rip West Saint Paul, MN
�
Rob Nagler on
Corrected URL for all those search engine's out there:
Also, if you go to the home page of bivio and search on 'Member
withdrawal', you will find more references on the subject than you will probably
have time to review for the rest of the night<g>.
Yup, the link is not working. I'd like to review the
article, as well, so maybe you could re-post it?
Best Regards,
Leo
From:club_cafe@bivio.com
[mailto:club_cafe@bivio.com] On Behalf Of Andy Butler Sent:
Wednesday, May 12, 2010 11:11 PM To: The Club
Cafe Subject: Re: club_cafe: Withdrawing Member
Rip,�
Thanks for the help. �I followed the link and it gave me an error saying
the requested page is not found. �Could you just email me the article? �
The main advantage of using stock is that you can defer capital gains
that are presently built in to some of your appreciated stocks. If you don't
have appreciated stocks, then use cash. Follow the article and I believe you
will get an idea what all the fuss is about.
�
Rip West Saint Paul, MN
�
Andy Butler on
Ok, again, forgive me for my incessant questioning. Hopefully, after this first withdrawal I will be an expert. So, the valuation of the member's account is $930.16 - we are a VERY new club, so it's a low amount - so, if I understand you correctly you are saying I should transfer stock out of our account into this members account in the amount of $930.16. Correct? So, I just need to contact Scottrade and tell them I need $930.16 of one or multiple stocks transferred to this person's account and they will work out the details of getting the exact amount of $930.16 transferred?
Is it that simple? What am I missing. Again, I am sorry for the questioning, I just want to be able to intelligently explain this to my other members.
Thank you!!
Andy
On Wed, May 12, 2010 at 9:28 PM, Rob Nagler <nagler@bivio.biz> wrote:
Corrected URL for all those search engine's out there:
I think Rip messed up the URL to make us think he's not really an avatar.
Cheers,
Rob
Rip West on
Hi Andy,
The way it usually works is that the treasurer will take enough shares at
the price used in the valuation to come close to the total amount due, and the
program will figure how much cash should be paid in addition. If you feel
confident that you can come up with the exact amount, go for it, but I
have always opted for the safer route of estimating something under the amount,
using whole shares.
Rip West Saint Paul, MN
Laurie Frederiksen on
> I think Rip messed up the URL to make us think he's not really an avatar.
I've noticed that he's had typing issues recently also. For example, last week I asked him to
enter a trade for me for a few (m)illion shares of P&G.......