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20 family members put our money together and bought into 2…

20 family members put...

20 family members put our money together and bought into 2 Janus Mutual funds. What ever money an individual put in the month, that money goes to buy shares for that person. Our account with Janus is in our organization name. We have a IRS identification number.
So if I put in $1 and my dad put in $1 and the shares of the mutual fund cost $1, I now own 1 share and my dad owns 1 share. So we actually look at how many shares we own of the actual mutual fund not how many shares of the 'club' we own. My question is are we an investment club or an investment pool. I got Pooled Investment group from Investopedio.com. Since we measure our ownership by how many shares of the actual mutual fund, how do we do taxes? Do we do K-1?

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

No. I think that is it.

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Answered in 13 minutes by:
3/28/2018
Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 33,115
Experience: Taxes, Immigration, Labor Relations
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An investment club is generally a group of people who pool their money to invest together.

Investment pool - is the money which are pooled together.

The SEC generally does not regulate investment clubs.

You may see the SEC position regarding that here

https://www.sec.gov/reportspubs/investor-publications/investorpubsinvclubhtm.html

However IRS regulates investment clubs and recognize them as separate entities

https://www.irs.gov/pub/irs-pdf/p550.pdf

see page 27

Each club must have an employer identification number (EIN) to use when filing its return.

Generally, an investment club is treated as a partnership for federal tax purposes unless it chooses otherwise.

In some situations, however, it is taxed as a corporation or a trust.

But since each investment club is unique, each club will need to decide if it has any registration requirements.

.

If your investment club is classified as a partnership - it files form 1065 as partnership tax return and issues K1 to each partner.

Questions?

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Customer reply replied 3 months ago
Normally, when you are in an investment club you own shares in the club. We aren't set up like that, we own shares in the actual mutual funds that we own together. Will that change how we do the taxes for this partnership?

If shares are listed in SEPARATE accounts under names of members - and not under the investment club's entity - then - reporting forms would be issued to each member - and no need to file 1065 - as there is no income items.

But in this case - you do not have an investment pool - and the money are not pooled together - as they are in separate accounts?

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Customer reply replied 3 months ago
No, the shares are not in individuals name. We own shares in 2 Janus mutual funds. The name on the account at Janus is our organization name. So we are pooling our money together. We buy $300 of shares every month. If I give $100 of that during a particular month and the shares cost $100, the 'partnership' books will show that I acquired 1 share that month and so own.
Customer reply replied 3 months ago
Can you give me the basics on how I would do taxes for this?

So far - investments activities are conducting under the name of your investment club.

Investment results are reported in the name of your club - and unless you specifically elected differently - your club is classified as a partnership.

The partnership income is required - if the club realized any income or deductions.

You will need to determine the percentage of ownership interest - that is based on your agreement.

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Customer reply replied 3 months ago
I'm thinking the only income we have is the gain in the shares of mutual funds we own. So for each month we bought shares, $300 is the cost basis and I have to determine how much gain we have had since those shares were bought. Once I know the gain, I distribute that via the members in according to how much money they gave for that particular month. Am I on the right track?

So regarding classification - for tax purposes your entity is treated as a partnership - unless you specifically elected a different treatment.

If you are still not sure what type of entity you have - chances are - that is a partnership.

.

Regarding filing requirements

See instructions

https://www.irs.gov/pub/irs-pdf/i1065.pdf

page 3 - Who Must File -- Domestic Partnerships
Except as provided below, every domestic partnership must file Form 1065, unless it neither receives income nor incurs any expenditures treated as deductions or credits for federal income tax purposes.

So - if there is NO income or deductions - filing is not required.

When shares are changing in value - there is NO gain or loss recognized unless shares are sold.

If however the mutual fund pays dividends or other taxable distribution - that is income for tax purposes.

Investment income will be reported - in your case - in the name of your club on forms 1099 - and these forms will tell you what to report.

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Customer reply replied 3 months ago
Ok. So I need to check to see if Janus Growth and Income and Balance Funds paid dividends or other taxable distribution in 2017 and that will determine what we will report as income. True?

That is correct - if there were any income distributed or credited to your account - that will be a trigger for filing requirements.

You also have to receive a 1099 form - please verify - which address was used when the account was opened - so you woudl not miss that form - or if you elected electronic only option - you may get all tax forms in the online account.

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Customer reply replied 3 months ago
OK. Thanks

I appreciate if you take a moment to rate the answer.

Experts are ONLY credited when answers are rated positively.If you still have any doubts, need clarification - please be sure to ask.I am here to help you with all Social Security / Tax related issues.
Lev
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Satisfied Customers: 33,115
Experience: Taxes, Immigration, Labor Relations
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