I need some insite before, this is going to happen
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I need some insite before, this is going to happen We are a 7 year old club, ten members. It looks like we will be loseing a member so I want to try to get a jump start on things to make this transaction as smooth for him and the club. When a members leaves the club theirs going to be transaction fees, selling stock brokage fees, gains and lost fee at tax time. So I want to make it fair to all members that one side of this transaction doesn't pay more then they should. We have in our By-laws that if a member leaves the club they will occur all fee a associated with the withdrawal. Now what is the ways that you know works well for all of us,, And the Guy (me) that has to input this in Bivio. Thank you so much for taking the time to read my thread and helping me out. Dale from Dollars and Sense Investment Club. Dale,
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When a members leaves the club theirs going to be
transaction fees, selling stock brokerage fees, gains and lost fee at tax time.
So I want to make it fair to all members that one side of this transaction
doesn't pay more then they should.
>>
It's not really true that there have to be fees associated
with partner withdrawals. The absolute fairest, least expensive, and most tax
desirable way to pay off a member is to transfer appreciated stock to him. You
can read more about this, right in bivio at the following
locations:
It appears that your partnership agreement states that the
outgoing member will reimburse the club for transaction costs in connection with
the withdrawal. It is not clear if you construe that to mean reimbursement for
income taxes paid because of gains on stocks sold to cover the payoff. If you do
construe it to mean that, you should change your thinking [and possibly your
agreement]. First of all, you don't know how much any capital gains are going to
cost your membership. Secondly, it really isn't the outgoing members
responsibility to pay the taxes on other members' gains. If there are gains, the
remaining members are going to have to pay tax on them at some time. True,
selling stocks for a payoff accelerates the time when those taxes are being
paid, but they are still the responsibility of the members owning units in the
club.
Of course, that is all moot, if you follow my advice, and
the advice in the above urls, because there won't be any tax costs if you
transfer appreciated stocks.
Let us know if you have any questions on
this.
Rip West Saint Paul, MN Hi Dale, You're in luck. Bivio handles all the hard stuff when it comes to withdrawals. The path of least resistance here is to offer the departing member stock. That way, NO ONE pays capital gains/losses or taxes. And if you approach him that way, he may go for it. Most of us have a provision in our bylaws that gives the remaining members control over how a departing member is paid out. But then, we also follow the golden rule! We always ask the member for his first and second choice of stocks, then we try to give it to him. If you do not have this provision, it's time to redo your bylaws. You can see how ours is written. It's under Club Documents at www.bivio.com/crowriver. I'm sure others would be happy to share their wording, as well. Now, most people don't realize that a stock's cost basis changes when it's transferred. Let's say the club has a cost basis of $100 in a stock. The current value is $500. Selling that stock would create a $400 taxable gain. The departing member has a cost basis in the club of $300 and his value is $500. If you were to transfer that $500 value to the department member, the bivio withdrawal statement would recalculate the cost basis of the stock to match the cost-basis of the member. So the member gets his $500 value, but his personal capital gain in the stock does not exceed his capital gain in the club. The only difference is, the member does not have to pay his $200 capital gain...yet. There's no gain created for either him or the club by simply transferring the stock. In the last couple of stock payoffs we've done, our cost basis in the stock was pretty low (appreciated stock). Our cost basis might be $8/share on a stock that's currently selling for $32. But by the time the withdrawal is complete, the cost basis becomes $15/share for the departing member (which is his true cost basis from the club). To test this, do a total withdrawal of your member. The screens are easy to follow. Then print the withdrawal report and study it. When you are done, you will be given the opportunity to "delete" the withdrawal, restoring your books to normal. I think you will find that transferring stock will relieve all your issues. I'd push for that first. Short of that, you will want to sell your losers first, creating a capital loss for all involved. Then sell the stocks with the least gains next. Keep in mind that capital gains are smaller on stocks that you've owned more than one year. Also note that the withdrawal process will figure any capital gain for the departing member, as well. So the other members aren't stuck paying gains on his portion, too. If you want to discuss this, write back. Lynn Ostrem, President garbagecop@earthlink,net Crow River Investment Club www.bivio.com/crowriver ----- Original Message ----- From: "Dale Belliveau" <electriciandale@bivio.com> To: <club_cafe@bivio.com> Sent: Saturday, August 05, 2006 9:41 AM Subject: club_cafe: I need some insite before, this is going to happen > We are a 7 year old club, ten members. It looks like we will > be loseing a member so I want to try to get a jump start on > things to make this transaction as smooth for him and the > club. When a members leaves the club theirs going to be > transaction fees, selling stock brokage fees, gains and lost > fee at tax time. So I want to make it fair to all members > that one side of this transaction doesn't pay more then they > should. > We have in our By-laws that if a member leaves the club > they will occur all fee a associated with the withdrawal. > Now what is the ways that you know works well for all of > us,, And the Guy (me) that has to input this in Bivio. > Thank you so much for taking the time to read my thread and > helping me out. > > Dale from Dollars and Sense Investment Club. |
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