Cash Withdrawal
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Cash Withdrawal a member in our club withdrew some of his account.. I checked his account and found he had 13,714.19 in market value available and 12,625.00 total paid. I paid him 13,000. and now his account shows (375.00) as total paid. This entry appeared several months ago- now a different member wishes tomake a complete withdrawal from her account. Will this negative balance affect her pay out total? M Trytten TSICOAA club No. Each partner's account is separate. Jack Ranby, Treasurer Grants Partners Investment Club No. As to the first member, part of the withdrawal may be capital gain if the total withdrawn ($13,000) is more than the adjusted tax basis (PIPE) at the end of the year. You will have to run another withdrawal report at year end to provide the relevant information to the member.
Ira Smilovitz
In a message dated 07/21/11 17:36:22 Eastern Daylight Time, rwesleyt@sbcglobal.net writes:
Actually, whether or not there is a gain will be determined using the partners adjusted basis at the time of the partial withdrawal. This will be shown on the withdrawal report generated when the withdrawal is entered. The only reason this would change is if changes are made to the accounting after the withdrawal has been paid which affect transactions dated prior to the withdrawal. Which is why it is important that records be reconciled prior to paying any withdrawals to anyone. On Thu, Jul 21, 2011 at 9:36 PM, iras1 <iras1@aol.com> wrote: --
Laurie Frederiksen Invest with your friends! www.bivio.com Become our Facebook friend! www.facebook.com/bivio Follow us on twitter! www.twitter.com/bivio Thanks for your prompt replies. You all agree on this . M Trytten This is incorrect. The gain on a partial withdrawal is determined only tentatively at the time of withdrawal. If there is a potential gain at the time of withdrawal, that gain can be reduced by subsequent contributions of capital before the end of the tax year.
Ira Smilovitz
In a message dated 07/21/11 22:47:35 Eastern Daylight Time, laurie@bivio.biz writes:
You lost me here Ira. How does a gain get reduced by adding more capital? Could you give an example? Also what does PIPE mean? Let me start with your last question first. PIPE stands for Paid In Plus Earnings which is equivalent to your tax basis. PIPE (as an acronym) isn't relevant to bivio users. I answer questions in a number of different forums and don't always check the source of the question. bivio users need only look at their tax basis.
Now to your first question. If you look at Item L on Schedule K-1, you see that your capital account is determined by taking your start-of-year value, adding to it any capital contributions for the year, adding(subtracting) any income(loss), and finally subtracting any withdrawals. For now, I'll ignore the issue of funding a partial withdrawal with stock and look only at the consequences of a partial withdrawal paid in cash.
Assume Member A has a current value of $1000 in the club and tax basis of $500. He requests a partial withdrawal of $600 in February. Since he is withdrawing more than his tax basis, he has a tentative gain of $100 and at the end of February (assuming the withdrawal is paid then), he has a balance of $400 with $0 cost basis. "A" contributes $25/month to the club each month from March through December, contributing a total of $250. For simplicity, let's assume that the club neither made nor lost any money during the year nor incurred any expenses. "A"'s account value at the end of the year would be $400 + 10*$25 = $650. His tentative gain would remain at $100 and his tax basis would be $250.
However, if you follow the scheme of Item L on the K-1, you get a different result. "A" started the year with $500 in his capital account. He added $250 during the year and removed $600. His final capital account balance is $150. The difference is the amount of the tentative gain calculated on the date of the partial withdrawal.
The final result (after "A" fully withdraws from the club) will be the same. The only difference is the timing of the tax liability: either f$100 now and $400 later, or $500 later. So technically, it's not that the gain is reduced by additional contributions, but the timing of the tax liability is changed.
Hope this clarifies things. If not, keep asking away.
Ira Smilovitz
In a message dated 07/22/11 10:55:28 Eastern Daylight Time, lindalee0@yahoo.com writes:
My earlier reply in this thresd (quoted below) was too definitive in its use of "incorrect". A more appropriate choice would have been "incomplete". There are other ways to determine the taxable gain that might be more favorable to the member. The approach used by bivio is in strict adherence to the published IRS Regulations, and as such, is not incorrect and will not be questioned by the IRS. The method which I described is more aggressive and pushes into the grey area where the final resolution of acceptable vs. not acceptable is determined on a case-by-case basis and, sometimes, through litigation. I hope this removes any implication that the methodology used by bivio is in any way wrong. Ira Smilovitz >>This is incorrect. The gain on a partial withdrawal is determined only tentatively at the time of withdrawal. If there is a potential gain at the time of withdrawal, that gain can be reduced by subsequent contributions of capital before the end of the tax year. Ira Smilovitz In a message dated 07/21/11 22:47:35 Eastern Daylight Time, laurie@bivio.biz writes: Actually, whether or not there is a gain will be determined using the partners adjusted basis at the time of the partial withdrawal. This will be shown on the withdrawal report generated when the withdrawal is entered. The only reason this would change is if changes are made to the accounting after the withdrawal has been paid which affect transactions dated prior to the withdrawal. Which is why it is important that records be reconciled prior to paying any withdrawals to anyone.<< |
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