How do Taxes work. Can someone walk me through them in
English. We are starting a General Partnership, but everyone
is asking how the taxes work. Please assume that I know
nothing, it will be easier to explain to everyone else.
Thanks

When you invest in a General Partnership, the taxes are
essentially the same as if you invested the money on your
own. You pool all the money together and your individual
share is equal to the fraction of the money you contributed.
If a taxable event occurs (dividend, interest, stock sale,
expense, etc.) each partner gets a fraction of that event to
report on his or her individual tax return. Rather than
reporting each individual event, the Partnership keeps track
of everything and, at the end of the year, prepares an
information return (Form 1065) which summarizes all the
income and expense items for the year and allocates them to
the individual partners. The allocations are reported to the
partners (and the IRS) on Schedule K-1 (Form 1065). The
partner transfers his/her numbers from the K-1 to the
appropriate part(s) of his/her Form 1040.

Many states require filing a state partnership return as
well. Some only if the partnership is based in the state,
some if any partner is a resident of the state.

If you have more questions, please ask.

Ira Smilovitz

Cesar Garcia wrote:
> How do Taxes work. Can someone walk me through them in
> English. We are starting a General Partnership, but everyone
> is asking how the taxes work. Please assume that I know
> nothing, it will be easier to explain to everyone else.
> Thanks

Thanks for your response. So the taxes are combined for all
events and we don't have to detail every transaction at the
memeber level just this K-1 to the 1040. Sounds easier than
I thought. Do you know anything about NJ and NY? We are in
NJ, but some members live in NY.

Is the service @ Bovio worth the $59. How much of the NAIC
stuff should we buy? Will both of these services be an
overkill? Thanks again for your help.

Ira Smilovitz wrote:
> When you invest in a General Partnership, the taxes are
> essentially the same as if you invested the money on your
> own. You pool all the money together and your individual
> share is equal to the fraction of the money you contributed.
> If a taxable event occurs (dividend, interest, stock sale,
> expense, etc.) each partner gets a fraction of that event to
> report on his or her individual tax return. Rather than
> reporting each individual event, the Partnership keeps track
> of everything and, at the end of the year, prepares an
> information return (Form 1065) which summarizes all the
> income and expense items for the year and allocates them to
> the individual partners. The allocations are reported to the
> partners (and the IRS) on Schedule K-1 (Form 1065). The
> partner transfers his/her numbers from the K-1 to the
> appropriate part(s) of his/her Form 1040.
>
> Many states require filing a state partnership return as
> well. Some only if the partnership is based in the state,
> some if any partner is a resident of the state.
>
> If you have more questions, please ask.
>
> Ira Smilovitz
>
> Cesar Garcia wrote:
> > How do Taxes work. Can someone walk me through them in
> > English. We are starting a General Partnership, but everyone
> > is asking how the taxes work. Please assume that I know
> > nothing, it will be easier to explain to everyone else.
> > Thanks

It sounds easy, but the devil is in the details. Each
taxable event needs to be allocated based on the percentage
ownership of the partnership at the time it occurs. Since
your partners may be contributing varying amounts, their
percentage ownership will change throughout the year. The
calculations *can* be done manually, but club accounting
software (like bivio) makes the job virtually painless. NAIC
also offers accounting software for desktop and/or online
use. The costs vary, but I believe there is a free
evaluation period.
FWIW, my club uses both (we like to have redundancy and
occasionally an error is found in one or the other program)
but it certainly isn't necessary.

You will have to file partnership returns in both states. NJ
partnerships report on NJ-1065. As you probably know from
filing personal income taxes, NJ is a peculiar state which
taxes gross income and allows very few deductions. In
general, you will combine all sources of partnership income
(interest, dividends, capital gains, etc.) into a single
number and ignore any expenses. Your NY resident partners
may have to file NJ non-resident returns if their shares of
the club's income exceed the NJ filing threshold.

You also will have to file IT-204 with NY to document the
partnership gain/loss attributible to your NY-resident
partners. You will have to report the income and expenses
for the total partnership, identify your NY-resident
partners and include copies of their federal K-1s. You do
not report your NY-nonresident partners' information to NY.

BTW, all of the forms and instructions are available online
at

http://www.state.nj.us/treasury/taxation/prntpart.htm
and
http://www.tax.state.ny.us/Forms/partner_llc_llp_cur_forms.htm

Hope this helps.

Ira Smilovitz


Cesar Garcia wrote:
> Thanks for your response. So the taxes are combined for all
> events and we don't have to detail every transaction at the
> memeber level just this K-1 to the 1040. Sounds easier than
> I thought. Do you know anything about NJ and NY? We are in
> NJ, but some members live in NY.
>
> Is the service @ Bovio worth the $59. How much of the NAIC
> stuff should we buy? Will both of these services be an
> overkill? Thanks again for your help.
>





> Ira Smilovitz wrote:
> > When you invest in a General Partnership, the taxes are
> > essentially the same as if you invested the money on your
> > own. You pool all the money together and your individual
> > share is equal to the fraction of the money you contributed.
> > If a taxable event occurs (dividend, interest, stock sale,
> > expense, etc.) each partner gets a fraction of that event to
> > report on his or her individual tax return. Rather than
> > reporting each individual event, the Partnership keeps track
> > of everything and, at the end of the year, prepares an
> > information return (Form 1065) which summarizes all the
> > income and expense items for the year and allocates them to
> > the individual partners. The allocations are reported to the
> > partners (and the IRS) on Schedule K-1 (Form 1065). The
> > partner transfers his/her numbers from the K-1 to the
> > appropriate part(s) of his/her Form 1040.
> >
> > Many states require filing a state partnership return as
> > well. Some only if the partnership is based in the state,
> > some if any partner is a resident of the state.
> >
> > If you have more questions, please ask.
> >
> > Ira Smilovitz
> >
> > Cesar Garcia wrote:
> > > How do Taxes work. Can someone walk me through them in
> > > English. We are starting a General Partnership, but everyone
> > > is asking how the taxes work. Please assume that I know
> > > nothing, it will be easier to explain to everyone else.
> > > Thanks

Hey thanks a lot, I'll print this up and pass it along to my
folks.

We have a few people on the fence and they keep bringing up
good questions that some of us who are excited about doing
this can easily overlook. 1) One of the things they
mentioned was, how do we keep someone or group from taking
the money. I've thought about it and I think we can limit
that by having 2 signatures on checks, but what other
recourse do we have. 2) Do we need a lawyer to look over the
documents and is the agreement a binding paper. When we
register the name do they take the agreement and file it.

Of course this may not be an issue when the portfolio is
small, but when you start talking hundreds of thousands then
people may be tempted. Thanks in advance for your help.



Ira Smilovitz wrote:
> It sounds easy, but the devil is in the details. Each
> taxable event needs to be allocated based on the percentage
> ownership of the partnership at the time it occurs. Since
> your partners may be contributing varying amounts, their
> percentage ownership will change throughout the year. The
> calculations *can* be done manually, but club accounting
> software (like bivio) makes the job virtually painless. NAIC
> also offers accounting software for desktop and/or online
> use. The costs vary, but I believe there is a free
> evaluation period.
> FWIW, my club uses both (we like to have redundancy and
> occasionally an error is found in one or the other program)
> but it certainly isn't necessary.
>
> You will have to file partnership returns in both states. NJ
> partnerships report on NJ-1065. As you probably know from
> filing personal income taxes, NJ is a peculiar state which
> taxes gross income and allows very few deductions. In
> general, you will combine all sources of partnership income
> (interest, dividends, capital gains, etc.) into a single
> number and ignore any expenses. Your NY resident partners
> may have to file NJ non-resident returns if their shares of
> the club's income exceed the NJ filing threshold.
>
> You also will have to file IT-204 with NY to document the
> partnership gain/loss attributible to your NY-resident
> partners. You will have to report the income and expenses
> for the total partnership, identify your NY-resident
> partners and include copies of their federal K-1s. You do
> not report your NY-nonresident partners' information to NY.
>
> BTW, all of the forms and instructions are available online
> at
>
> http://www.state.nj.us/treasury/taxation/prntpart.htm
> and
> http://www.tax.state.ny.us/Forms/partner_llc_llp_cur_forms.htm
>
> Hope this helps.
>
> Ira Smilovitz
>
>
> Cesar Garcia wrote:
> > Thanks for your response. So the taxes are combined for all
> > events and we don't have to detail every transaction at the
> > memeber level just this K-1 to the 1040. Sounds easier than
> > I thought. Do you know anything about NJ and NY? We are in
> > NJ, but some members live in NY.
> >
> > Is the service @ Bovio worth the $59. How much of the NAIC
> > stuff should we buy? Will both of these services be an
> > overkill? Thanks again for your help.
> >
>
>
>
>
>
> > Ira Smilovitz wrote:
> > > When you invest in a General Partnership, the taxes are
> > > essentially the same as if you invested the money on your
> > > own. You pool all the money together and your individual
> > > share is equal to the fraction of the money you contributed.
> > > If a taxable event occurs (dividend, interest, stock sale,
> > > expense, etc.) each partner gets a fraction of that event to
> > > report on his or her individual tax return. Rather than
> > > reporting each individual event, the Partnership keeps track
> > > of everything and, at the end of the year, prepares an
> > > information return (Form 1065) which summarizes all the
> > > income and expense items for the year and allocates them to
> > > the individual partners. The allocations are reported to the
> > > partners (and the IRS) on Schedule K-1 (Form 1065). The
> > > partner transfers his/her numbers from the K-1 to the
> > > appropriate part(s) of his/her Form 1040.
> > >
> > > Many states require filing a state partnership return as
> > > well. Some only if the partnership is based in the state,
> > > some if any partner is a resident of the state.
> > >
> > > If you have more questions, please ask.
> > >
> > > Ira Smilovitz
> > >
> > > Cesar Garcia wrote:
> > > > How do Taxes work. Can someone walk me through them in
> > > > English. We are starting a General Partnership, but everyone
> > > > is asking how the taxes work. Please assume that I know
> > > > nothing, it will be easier to explain to everyone else.
> > > > Thanks

1) There's no way you can ever keep someone dishonest from
taking the money. Requiring two signatures will help, but if
you open your checking account directly with a broker, they
may not offer that option.

2) If you start with the model partnership agreement from
NAIC, you probably don't need any legal review. That
agreement has been around for decades and has served many
clubs well. The partnership agreement IS a legally binding
agreement. It gives the partnership the power to enforce its
rules on the individual members and gives the individual
members the legal authority to force the partnership to
adhere to the terms of the agreement.

One way to deal with your concerns about the disappearance
of a sizeable portfolio is to take out an insurance bond.
NAIC offers them (I'm sure others do as well). This will
protect the club against the malfeasance of a member.

You can learn a lot by reading the NAIC Official Guide:
Starting and Running a Profitable Investment Club. Many
libraries have a copy, or you can purchase directly from
NAIC or any large bookstore.

Ira Smilovitz

Cesar Garcia wrote:
> Hey thanks a lot, I'll print this up and pass it along to my
> folks.
>
> We have a few people on the fence and they keep bringing up
> good questions that some of us who are excited about doing
> this can easily overlook. 1) One of the things they
> mentioned was, how do we keep someone or group from taking
> the money. I've thought about it and I think we can limit
> that by having 2 signatures on checks, but what other
> recourse do we have. 2) Do we need a lawyer to look over the
> documents and is the agreement a binding paper. When we
> register the name do they take the agreement and file it.
>
> Of course this may not be an issue when the portfolio is
> small, but when you start talking hundreds of thousands then
> people may be tempted. Thanks in advance for your help.

Again thanks for the advice. We actually have the book
already, but its always better to hear it from somone who is
already going through it. The books try to sell you a point
of view and that may or may not be close to reality.


Ira Smilovitz wrote:
> 1) There's no way you can ever keep someone dishonest from
> taking the money. Requiring two signatures will help, but if
> you open your checking account directly with a broker, they
> may not offer that option.
>
> 2) If you start with the model partnership agreement from
> NAIC, you probably don't need any legal review. That
> agreement has been around for decades and has served many
> clubs well. The partnership agreement IS a legally binding
> agreement. It gives the partnership the power to enforce its
> rules on the individual members and gives the individual
> members the legal authority to force the partnership to
> adhere to the terms of the agreement.
>
> One way to deal with your concerns about the disappearance
> of a sizeable portfolio is to take out an insurance bond.
> NAIC offers them (I'm sure others do as well). This will
> protect the club against the malfeasance of a member.
>
> You can learn a lot by reading the NAIC Official Guide:
> Starting and Running a Profitable Investment Club. Many
> libraries have a copy, or you can purchase directly from
> NAIC or any large bookstore.
>
> Ira Smilovitz
>
> Cesar Garcia wrote:
> > Hey thanks a lot, I'll print this up and pass it along to my
> > folks.
> >
> > We have a few people on the fence and they keep bringing up
> > good questions that some of us who are excited about doing
> > this can easily overlook. 1) One of the things they
> > mentioned was, how do we keep someone or group from taking
> > the money. I've thought about it and I think we can limit
> > that by having 2 signatures on checks, but what other
> > recourse do we have. 2) Do we need a lawyer to look over the
> > documents and is the agreement a binding paper. When we
> > register the name do they take the agreement and file it.
> >
> > Of course this may not be an issue when the portfolio is
> > small, but when you start talking hundreds of thousands then
> > people may be tempted. Thanks in advance for your help.