I have several questions I could not find directly in
search, so if someone could answer, that would be greatly
appreciated:

I notice that profits can be taken based on percentages, but
what is a good way to determine what profits to take?

Are profits normally taken in the course of a year, as you
are being taxed on them anyway?

Can contributions to the club (i.e. monthly dues, startup)
be deducted to offset taxes on gains, and could a good
strategy be to take a profit (that you will be taxed on)
then reinvest essentially balance zero.

I am trying to figure how not to get the big tax burden if
profits aren't taken in any year, as we would like to keep
money in the acct to continue to invest.

Any information would be great.

Todd.

Everyone's situation is different, but if you have a normal club, like most
of us, the dues you pay in are minimal. Great wealth is created over many
many years. Sure, over time there are clubs with multi-million dollar
market values, but the biggest value of a club is typically the education we
all receive from our experience. In other words, don't quit your day job!
<G>

In my club, we "frown" on taking partial distributions. But then, we are
only 6 years old. The largest member in our club has a capital account
value of around $3,500. We prefer to let our money stay in the club and
grow.

Consider this: Someone pays in $30/month (the norm) for 2 years. That's
$720. Let's say they gained 20% on their money, roughly valued now at $864.
Something happened to make them want to take a partial distribution of, say,
half their money. How far do you think $432 can go? It's just not worth
doing.

As far as covering capital gains are concerned, that's a matter of good
portfolio management. We don't pay out departing members in cash. We try
to offset capital gains with losses. Even so, the market value of the club,
and subsequently, the capital gains we may take during any one year,
wouldn't put anyone in the poor house. The dollar amounts are simply too
low for that.

We would recommend against partial withdrawals unless absolutely necessary.
Good question, though.

Lynn Ostrem, President
garbagecop@earthlink.net
Crow River Investment Club
www.bivio.com/crowriver

.

If you are all taxed as a partnership or LLC with flow
through taxation, and you sell out of a stock, you are taxed
at the end of the year on those gains, whether or not you
get any money correct? Is that just something you accept?
After several years, those buys and sells that may have
transpired can add up. How do you account for the flow
through taxation on any realized profits from selling a
stock?

Thanks again for the discussion.



Lynn Ostrem wrote:
> Todd.
>
> Everyone's situation is different, but if you have a normal club, like most
> of us, the dues you pay in are minimal. Great wealth is created over many
> many years. Sure, over time there are clubs with multi-million dollar
> market values, but the biggest value of a club is typically the education we
> all receive from our experience. In other words, don't quit your day job!
> <G>
>
> In my club, we "frown" on taking partial distributions. But then, we are
> only 6 years old. The largest member in our club has a capital account
> value of around $3,500. We prefer to let our money stay in the club and
> grow.
>
> Consider this: Someone pays in $30/month (the norm) for 2 years. That's
> $720. Let's say they gained 20% on their money, roughly valued now at $864.
> Something happened to make them want to take a partial distribution of, say,
> half their money. How far do you think $432 can go? It's just not worth
> doing.
>
> As far as covering capital gains are concerned, that's a matter of good
> portfolio management. We don't pay out departing members in cash. We try
> to offset capital gains with losses. Even so, the market value of the club,
> and subsequently, the capital gains we may take during any one year,
> wouldn't put anyone in the poor house. The dollar amounts are simply too
> low for that.
>
> We would recommend against partial withdrawals unless absolutely necessary.
> Good question, though.
>
> Lynn Ostrem, President
> garbagecop@earthlink.net
> Crow River Investment Club
> www.bivio.com/crowriver
>
> .

Todd, yes, members of the club report taxable gains, losses, and expenses on
their share of the clubs transactions during the year. You sure wouldn't
want it all building up to do at once when you withdraw. The total amount
of gain, if you have one, is added to your tax basis, so when you do
withdraw, your realized gain will be less then. (On a year the club has an
overall loss, your share is subtracted from your tax basis.) It would be
counterproductive to your long range goals to distribute money out to the
members each year, and it is not at all normally done. Gene Rooks, Space
Coast Chapter

Todd,

Over many years, you may have to pay your fair share of capital gains, but
your paid-in capital and the compounding value of your capital account STILL
belongs to you. You don't lose it ust because it is not distributed every
year. You simply defer the receipt of it. You let it compound.

Most club members are parking small amounts of capital while they learn to
invest with their friends. This differs significantly from people who are
short-term traders. They are the ones who want/need/MUST account for every
penny on every trade, right now. They need to be trading alone, not in a
group setting.

So let me give you an idea of what I'm talking about. Here are my club's
TOTAL long term (LT) and short term (ST) capital gains for :

2003 ST -0-, LT -$432.00
2004 ST -0-, LT - $31.00
2005 ST -0-, LT -$25.00
2006 ST $137.44, LT $335.51

We took a hit in 2003, taking a net loss of $432. The difference between
our capital gains and losses for the next two years nearly offset each
other. We had more in interest and dividend income than capital gains
during those years. And in 2006, our gains outpaced our losses.

To put those in perspective, my average ownership in the club runs around
11%. LT capital gains are taxes at 15%. That whoppin' $335.51 LT gain last
year cost me about $5.54 out of pocket. The cost of belonging to the club is
not enough to keep you awake at night.

Hope that helps.

Lynn O.

> If you are all taxed as a partnership
> or LLC with flow through taxation,
> and you sell out of a stock, you are
> taxed at the end of the year on those
> gains, whether or not you get any
> money correct? Is that just something
> you accept?

Yes, that is something my club just accepts. Last month my
club sold two stocks producing about $3,000 in gains. My
share of those gains are about $600. Taxed at 15% as a
LTCG, that's about $90 more in taxes I'll owe. When the
time comes to pay those taxes, I'll find an extra $90
somewhere.

-Jim Thomas