Fees vs. Income
| HelpRegister |
Fees vs. Income Back on February 20, 2001, I made this rash
promise.........
I promise that I will not write another
column about fees for at least two days. <g>
I'm a man of my word. It's been over two days. Today's
discourse on fees was prompted by an inquiry to Candis, which was turned over to
us.
I would like to know the difference
between fees and income for tax purposes (for an investment club). In my
club when a person makes a payment late they are charged a late FEE. This is
added to the general pool of money and invested. My predecessor
(treasurer) last year labeled these as income and thus they needed to be clamed
with our club taxes.
If one was to search on the word 'fee' in the search box
on bivio's home page, you would be presented with four pages of
entries. I have tried to distill the wisdom of all this material into two
articles, as follows:
Sorry, Gotta Talk About Fees
Again
Equal Allocation of
Expenses
I recommend those two articles to you, but I can see that
your question is not exactly on point with those two attempts to explain fees
once and for all.
I am a firm believer in NOT
recognizing taxable income on transactions between the club and it
members, if at all possible. This means that when you want to account for a late
fee, you do so by going to Accounting>Members and selecting the member to
whom the fee is being assessed. Then click on Fee. After the amount is recorded,
the member's basis in the partnership will have been increased, but no income
will have been recognized by the partnership. This is as it should be. The only
thing that has happened is that a member has contributed some money to the club.
The difference between a 'fee' and a 'payment' is that no units are awarded for
a fee. Both types of contribution do result in the member's tax basis being
increased.
The other way to record a fee would be to go to
Accounts>Broker/Cash, and enter an income item. As stated before, I disagree
with this treatment, and it will result in taxable income being reported by all
members for what was a simple contribution by a member to the club. So this long
answer is my way of saying that I disagree with the treatment that your
predecessor treasurer used for late fees.
Also we had two new members last year.
They were charged $250 each,
again I am not sure would this be considered income or a group fee. This money
(the $250/person) was again added to the gnarl pool of money that we
invest.
I agree that these funds should be added to the general pool of money for investment. Certainly, no one would argue that these funds should be considered income to the club. For what purpose was the $250 paid? Was this to be an investment in the club for which units should be issued? If so, the amounts should be credited to those members as payments. Or, were the amounts supposed to be considered a fee, for which no units were to be issued. This will have the effect of enhancing the existing members positions at the expense of the incoming members. For possible problems with this read Payments vs
Fees
I hope this answers your question, and I know that some
readers hope that this won't open the floodgates for many more articles on
fees.
|
|
||||||