club_cafe: Time Based Accounting
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club_cafe: Time Based Accounting > (1) Let's say a new member joins in January and invests. > The club member then resigns in July. Excess cash is used > to redeem the partner - nothing is sold. Then a capital > gain is realized later in the year. Under time-based > accounting, since that member was not current as of the > record date, they are not liable for taxes. My point is > this seems to penalize the remaining members because they > are saddled with absorbing that person gains. If you have any more gains sitting around, please penalize me with them! 8^) Joe,
If you have any more gains sitting around,
please penalize me with them! 8^)
I don't think you'd feel that way if you bought into the
club on June 30, when there was 5,000 of unrealized gains in a stock, and then
they sold that stock on July 1. You would be reporting a share of the
$5,000 gain, even though you reaped no benefit from it. Your value didn't go up,
just your taxable income.
Rip West Saint Paul, MN Thanks Rip. The below scenario is exactly what I was referring to. And not to sound repetitive (and a novice), but will the Bivio service allocate these unrealized gains properly once it is realized? ie. the new member who bought into the fund on June 30 does not get saddled with previous unrealized gains, but only from that point on. Thanks. Rip West wrote: > Joe, > > If you have any more gains sitting around, > please penalize me with them! 8^) > > I don't think you'd feel that way if you bought into the > club on June 30, when there was 5,000 of unrealized gains in a stock, and then > they sold that stock on July 1. You would be reporting a share of the > $5,000 gain, even though you reaped no benefit from it. Your value didn't go up, > just your taxable income. > > Rip West > Saint Paul, > MN And not to sound repetitive (and a novice),
but will the Bivio service allocate these unrealized gains properly once it is
realized? ie. the new member who bought into the fund on June 30 does not
get saddled with previous unrealized gains, but only from that point
on.
Yes, bivio will allocate these unrealized gains
'properly', but probably not to your liking. Remember that the club had $5,000
of unrealized gains on 6/30 when the new member joined. On 7/1, the club sells
the stock and realizes $5,000 of gains. The new member, being a member at the
time the gain is 'realized' [as opposed to earned], will be taxed on a portion
of that gain. This is similar to the situation of buying into mutual funds. You
buy in on the basis of the value of appreciated stocks, and have to report a
share when those stocks are sold. In a mutual fund, the effect will be spread
out over many more people, so the effect is not so severe.
There really is no way to get around the problem.
Time-based or Snapshot method will yield the same, seemingly unfair result.
Eventually, the member will recoop, since his basis will go up by the amount of
the gain, and he will have an offsetting loss when he withdraws. I have always
thought that to be of small comfort, since the day of withdrawal could be years
down the line, and, in the meantime, the member has reported more income than he
has realized.
Rip West Saint Paul, MN |
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