club_cafe: Allocating Commissions

iras1 on

In a message dated 3/11/2007 10:39:43 A.M. Eastern Daylight Time, pbleic@bivio.com writes:

We are a new club (and I am a new treasurer) thinking of
using buyandhold.com, which charges $6.99 per month
(covering up to 2 trades) and $2.99 for each additional
trade within the month. We would use accountsync, but I am
just trying to understand the allocation of commissions to
expenses.

Does the $6.99 get associated with two specific trades each
month? Or is it a standalone expense? What if you do only
one trade - is it all linked to the one trade? How about if
you do NO trades?

Is there a difference listing it as an investment expense
vs. an actual fee associated with a specific trade?

The $6.99 monthly fee is a deductible expense because it is not directly linked to a trade (that is, you are not paying the fee specifically because you made a specific transaction). Any additional charge which is tied to a specific trade is a commission.

The difference between expenses and commissions relates to tax treatment. Expenses are deducted from current year income. Your members may or may not be able to claim their share of these expenses on their personal tax returns. Investment expenses are only deductible as miscellaneous itemized deductions subject to a minimum threshold of 2% of AGI. Commissions, however, increase the cost basis of shares purchased or reduce the proceeds of sales, thereby reducing the taxable gain when the stock is sold. While the commission cost may not provide a current year benefit in the case of a purchase commission, your members will realize the benefit when the gain is realized.

Ira Smilovitz

AOL now offers free email to everyone. Find out more about what's free from AOL at AOL.com.

Paul Bleicher on

Ira:
Thanks. This is exactly as expected. In a typical
situation, I would guess that most can't deduct an
investment expense. Therefore, the difference between a
$6.99 commission and a $6.99 expense (assuming two stock
BUYS in the month) is relief from any gain based upon short
term vs. long term capital gains (length of hold), and
divided amongst the membership proportionally to ownership.
The difference to any member is probably pretty darn small,
and more than made up for by the very low commission cost.

All that being said, you still have to buy into the
buyandhold.com philosophy, which is still "to be discussed"
by our club.

Thanks,

Paul

IraS1@aol.com wrote:
> In a message dated 3/11/2007 10:39:43 A.M. Eastern Daylight T
> The $6.99 monthly fee is a deductible expense because it is not directly
> linked to a trade (that is, you are not paying the fee specifically because you
> made a specific transaction). Any additional charge which is tied to a specific
> trade is a commission.
>
> The difference between expenses and commissions relates to tax treatment.
> Expenses are deducted from current year income. Your members may or may not
> be able to claim their share of these expenses on their personal tax
> returns. Investment expenses are only deductible as miscellaneous itemized
> deductions subject to a minimum threshold of 2% of AGI. Commissions, however,
> increase the cost basis of shares purchased or reduce the proceeds of
> sales, thereby reducing the taxable gain when the stock is sold. While
> the commission cost may not provide a current year benefit in the case of a
> purchase commission, your members will realize the benefit when the gain is
> realized.
>
> Ira Smilovitz
>
>
> AOL now offers free email to everyone. Find out more about what's free from AOL at AOL.com.

Mail