club_cafe: Re: A wash expense??

iras1 on

Lynn,

I did understand your question, and I gave you the correct responses. I just failed to explain the reasoning.

From the standpoint of your club's members, the annual $14 NAIC fee is a potential tax deduction (investment expense - miscellaneous itemized deductions). What you think you are trying to accomplish is to move the money through the club without affecting anything within the club and leaving it to the members to keep track (on their own) that the $14 is a deductible expense.

What I am proposing is to have the "club" keep track of all the potential tax deductions related to club membership and report them in a manner which will make the members' tax record keeping and preparation less painful.

If you record all the $14 payments as fees (one of my suggestions) you are *temporarily* increasing the paid-in and tax basis columns by $14 for each member who has paid the fee. The timely payers will see their paid-in and tax basis columns increase first, the late payers will see theirs increase later.

You then record the check from the club to NAIC as (possibly) two separate transactions. (1) The sum of the $14 fees is entered as a deductible club expense equally allocated to all partners. When you run your distribution of earnings report at the end of the year each member will see their tax basis column decrease by $14 to account for the fee. The $14 NAIC payment will appear on the Sch. K-1 on lines 10 and 14(b)2 which will transfer to Sch. A on the member's 1040.

(2) If your club allocates the $40 Club fee on the basis of % ownership in the club, this will have to be entered separately from the sum of the $14 individual fees. If you allocate this fee equally across all members, just post the full amount of the check to NAIC in step (1) above.

The net result is that your club's records will show that each member contributed $14 more (each year) in the paid in column. This will lower your return calculations slightly, but *correctly*. Again, if we view this from the perspective of the individual member, his/her total investment is the sum of the money given to the club and the money given to NAIC. Return calculations *should* be based on this total, so why not keep the accurate totals within the club.

Hope this explanation helps some. If not, ask again and I'll try once more.

Ira Smilovitz

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