Are we allowed to compensate the club's officers?
Hello, we are starting a new Investment Club and wanted to know if it was "acceptable" for the President, Vice President, Secretary and Treasurer to be compensated a little bit for their extra efforts (perhaps something like a stipend)?
Is that allowable or something that is restricted?
Thank you for the help !!
Is that allowable or something that is restricted?
Thank you for the help !!
I have no idea of the legality of compensation for the Officers, but in 30+ years of participation in investment clubs, I've never heard of it being done. I'm guessing that if your partnership agreement calls for it, you would be able to do this, but remember that the greater the club expenses, the lower the financial returns (not to mention the costs to comradery if some members are being paid and others are not). On a slightly different take on the question, reimbursement for reasonable expenses is typical. Again, in my experience, office supplies, club accounting software, and educational materials available for use by all members usually are paid for by the club. Additionally, members' BI membership, stock analysis software and the like may be paid for by the club or they may be made the responsibility of the individual members. I hope this helps. Don't hesitate to ask questions like this. You will soon see that the BI community is more than willing to help you succeed.
Hello, we are starting a new Investment Club and wanted to know if it was "acceptable" for the President, Vice President, Secretary and Treasurer to be compensated a little bit for their extra efforts (perhaps something like a stipend)?
Is that allowable or something that is restricted?
Thank you for the help !!
In the 19 years I have been in an investment club we have never done that. I have heard of it. I think it is bad precedent. How much? Per year? Per quarter? Once you start then someone says I need a "raise" or another may say I will do it for "less". That is for starters.
Next are they going to claim it as earned income? Will you take out withholdings? Ok, so maybe you give them less than they need not report it as income. Well you have other concerns....
Then you need to have a change in your Partnership Agreement to allow for compensation. Will your Operating Procedures reflect that some partners will be compensated? Remember a club is a legal entity recognized by your state and federal laws.
I think you open a whole can of worms when all you trying to do is recognize that there is work to be done in a club. If someone wanted to buy me a meal for my efforts then ok. But nothing on the books and nothing that is a requirement/ expectation of the other partners. (I like eating.)
But going back your original question: ok to compensate? What those advocating for compensation are really saying is they want others to do the work. If a partner refuses to take a major role in the club it tells me they will (based on being in a club for 19 years) they will be a passive partner. They won't do stock presentations. They won't be a stock watcher. And they won't do education presentations.
So my question to you is do you want to be in a club (partnership/business) with someone that won't pull their weight?
My solution is make it clear that EVERYONE in the club will have to take on each role at sometime during the life of the club. We rotate every position every year EXCEPT Treasurer which is a 2 year term. Make clear everyone does stock presentations. Everyone watches a stock or two or four. Everyone does an education presentation per year. And everyone takes some administrative role in running the club.
Make sure people realize what they are getting into: A business. I don't want to be in business with someone who expects me to do the work.
Kevi Gillogly
PS: I once laid out all the duties in a club and I got over a dozen. If everyone takes one it will take 12 years to rotate through them all.
Hello, we are starting a new Investment Club and wanted to know if it was "acceptable" for the President, Vice President, Secretary and Treasurer to be compensated a little bit for their extra efforts (perhaps something like a stipend)?
Is that allowable or something that is restricted?
Thank you for the help !!
As club president for most of our 16 years, I'm owed a lot of retroactive compensation. 🤣
In the 19 years I have been in an investment club we have never done that. I have heard of it. I think it is bad precedent. How much? Per year? Per quarter? Once you start then someone says I need a "raise" or another may say I will do it for "less". That is for starters.Next are they going to claim it as earned income? Will you take out withholdings? Ok, so maybe you give them less than they need not report it as income. Well you have other concerns....Then you need to have a change in your Partnership Agreement to allow for compensation. Will your Operating Procedures reflect that some partners will be compensated? Remember a club is a legal entity recognized by your state and federal laws.I think you open a whole can of worms when all you trying to do is recognize that there is work to be done in a club. If someone wanted to buy me a meal for my efforts then ok. But nothing on the books and nothing that is a requirement/ expectation of the other partners. (I like eating.)But going back your original question: ok to compensate? What those advocating for compensation are really saying is they want others to do the work. If a partner refuses to take a major role in the club it tells me they will (based on being in a club for 19 years) they will be a passive partner. They won't do stock presentations. They won't be a stock watcher. And they won't do education presentations.So my question to you is do you want to be in a club (partnership/business) with someone that won't pull their weight?My solution is make it clear that EVERYONE in the club will have to take on each role at sometime during the life of the club. We rotate every position every year EXCEPT Treasurer which is a 2 year term. Make clear everyone does stock presentations. Everyone watches a stock or two or four. Everyone does an education presentation per year. And everyone takes some administrative role in running the club.Make sure people realize what they are getting into: A business. I don't want to be in business with someone who expects me to do the work.Kevi GilloglyPS: I once laid out all the duties in a club and I got over a dozen. If everyone takes one it will take 12 years to rotate through them all.Hello, we are starting a new Investment Club and wanted to know if it was "acceptable" for the President, Vice President, Secretary and Treasurer to be compensated a little bit for their extra efforts (perhaps something like a stipend)?
Is that allowable or something that is restricted?
Thank you for the help !!
We have been a club for over 20 years!, We are all volunteers and rotate the position every year or two .Our moto is to spend all the money we have on investing! ,
As club president for most of our 16 years, I'm owed a lot of retroactive compensation. 🤣In the 19 years I have been in an investment club we have never done that. I have heard of it. I think it is bad precedent. How much? Per year? Per quarter? Once you start then someone says I need a "raise" or another may say I will do it for "less". That is for starters.Next are they going to claim it as earned income? Will you take out withholdings? Ok, so maybe you give them less than they need not report it as income. Well you have other concerns....Then you need to have a change in your Partnership Agreement to allow for compensation. Will your Operating Procedures reflect that some partners will be compensated? Remember a club is a legal entity recognized by your state and federal laws.I think you open a whole can of worms when all you trying to do is recognize that there is work to be done in a club. If someone wanted to buy me a meal for my efforts then ok. But nothing on the books and nothing that is a requirement/ expectation of the other partners. (I like eating.)But going back your original question: ok to compensate? What those advocating for compensation are really saying is they want others to do the work. If a partner refuses to take a major role in the club it tells me they will (based on being in a club for 19 years) they will be a passive partner. They won't do stock presentations. They won't be a stock watcher. And they won't do education presentations.So my question to you is do you want to be in a club (partnership/business) with someone that won't pull their weight?My solution is make it clear that EVERYONE in the club will have to take on each role at sometime during the life of the club. We rotate every position every year EXCEPT Treasurer which is a 2 year term. Make clear everyone does stock presentations. Everyone watches a stock or two or four. Everyone does an education presentation per year. And everyone takes some administrative role in running the club.Make sure people realize what they are getting into: A business. I don't want to be in business with someone who expects me to do the work.Kevi GilloglyPS: I once laid out all the duties in a club and I got over a dozen. If everyone takes one it will take 12 years to rotate through them all.Hello, we are starting a new Investment Club and wanted to know if it was "acceptable" for the President, Vice President, Secretary and Treasurer to be compensated a little bit for their extra efforts (perhaps something like a stipend)?
Is that allowable or something that is restricted?
Thank you for the help !!
You do not want to compensate officers. If you decide to compensate officers, any money they receive is a "guaranteed payment" (in tax-speak) and is subject to self-employment tax on their personal income tax return. None of the investment club accounting software can handle the tax return preparation.for this situation.
You can't use DIY solutions such as TurboTax Business because that software is designed for partnerships (or LLCs taxed as partnerships) where the relative ownership shares are constant or change only once or twice a year. The ownership shares in an investment club change every time a member contributes funds to the club. If you insisted on a DIY solution, the only way to use the software correctly is to understand the underlying partnership accounting well-enough to manually calculate each item for the return, and more importantly, each entry on the Schedule K-1s, and use the software in "forms mode" to manually enter each item on each form/schedule.
The cost for the club to hire an outside tax professional to prepare the tax returns will be $x00 - $y000 (with x>1). My fee (granted I'm in NJ which is an expensive location) would start at $500 and quickly get much larger. So, this is not a route you want to take unless absolutely necessary. Most professional tax software isn't any better at handling investment clubs than the DIY solutions - what you're paying for is the preparer's knowledge in using his/her software. You would also want to find a tax preparer who is familiar with investment clubs and understands the unique calculations involved.
Bottom line - you want to keep your club's operations simple enough that you can use the tax preparation software that comes with (or is directly compatible with) the accounting software.
Ira Smilovitz, EA
As club president for most of our 16 years, I'm owed a lot of retroactive compensation. 🤣In the 19 years I have been in an investment club we have never done that. I have heard of it. I think it is bad precedent. How much? Per year? Per quarter? Once you start then someone says I need a "raise" or another may say I will do it for "less". That is for starters.Next are they going to claim it as earned income? Will you take out withholdings? Ok, so maybe you give them less than they need not report it as income. Well you have other concerns....Then you need to have a change in your Partnership Agreement to allow for compensation. Will your Operating Procedures reflect that some partners will be compensated? Remember a club is a legal entity recognized by your state and federal laws.I think you open a whole can of worms when all you trying to do is recognize that there is work to be done in a club. If someone wanted to buy me a meal for my efforts then ok. But nothing on the books and nothing that is a requirement/ expectation of the other partners. (I like eating.)But going back your original question: ok to compensate? What those advocating for compensation are really saying is they want others to do the work. If a partner refuses to take a major role in the club it tells me they will (based on being in a club for 19 years) they will be a passive partner. They won't do stock presentations. They won't be a stock watcher. And they won't do education presentations.So my question to you is do you want to be in a club (partnership/business) with someone that won't pull their weight?My solution is make it clear that EVERYONE in the club will have to take on each role at sometime during the life of the club. We rotate every position every year EXCEPT Treasurer which is a 2 year term. Make clear everyone does stock presentations. Everyone watches a stock or two or four. Everyone does an education presentation per year. And everyone takes some administrative role in running the club.Make sure people realize what they are getting into: A business. I don't want to be in business with someone who expects me to do the work.Kevi GilloglyPS: I once laid out all the duties in a club and I got over a dozen. If everyone takes one it will take 12 years to rotate through them all.Hello, we are starting a new Investment Club and wanted to know if it was "acceptable" for the President, Vice President, Secretary and Treasurer to be compensated a little bit for their extra efforts (perhaps something like a stipend)?
Is that allowable or something that is restricted?
Thank you for the help !!
Thank you ALL for the detailed, helpful and supportive responses. VERY helpful and VERY much appreciated !!