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August 12, 2003 - ICLUBcentral Software News

ICLUB News August 12, 2003


The Tax Cuts: What do they mean for your club?
by Matt Stoller, ICLUBcentral Inc.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 has important implications for investors in equity markets, including investment clubs. This article focuses on what the bill means for your club in 2003, though the bill is also slated to impact capital gains rates and dividend tax rates over the next ten years.

Investment clubs are what accountants call “pass-through entities.” This means that clubs don’t pay taxes themselves (although they are required to file informational tax returns every year). Instead, any tax consequences of activity in the club are “passed through” to its members. So, with respect to the tax cuts that took place this year, the change in the amount of taxes you owe will show up in cash on the individual tax forms of club members.

The tax act altered the percentage owed on capital gains transactions for stocks owned for more than one year, plus lowered the tax rates for certain types of dividends. In other words, you and your fellow club members (and all investors) will pay less in taxes. That’s the good news.

The bad news is that tax filings will get more complicated this year. For instance, the Five Year Capital Gains category disappeared for transactions after May 5, 2003. Dividends from common stocks held more than sixty consecutive days become “qualifying dividends” (which means they qualify for lower tax rates) retroactively to January 1, 2003. Meanwhile, some dividends from REITS, mutual funds, investment trusts, and other entities are considered “qualifying”, although it is the responsibility of individual REITs and funds to notify their shareholders how much is “qualifying” and how much is “non-qualifying.”

In sum, the tax act creates some changes in the way your club keeps its books, and these changes will need to be reflected in your accounting software program. The new Federal Tax Forms, including the Form 1065 for partnerships such as investment clubs, will reflect these and other changes.

But there’s also more good news: as in the past, all investment clubs with a current ICLUBcentral Support Agreement will get the tax law update to their software for free. See below for further details.

The Tax Cuts: How your club can prepare
by Bryce Klempner, ICLUBcentral Inc.

The changes in tax law which Matt describes above mean your club members will pay less in taxes this year. They also mean that your NAIC Club Accounting software needs to be updated to reflect the new rules.

The single most important step your club can take right now is to make sure that your club accounting Support Agreement is current. A Support contract brings with it free updates to keep your club’s software in compliance with tax law. Clubs that have current Support contracts will have free access to the forthcoming software update to make the club accounting software compatible with the new tax laws. This update will also make their software compatible with the 2003 federal and state tax printers. Clubs that do not have this update will not be able to file taxes properly.

So, remember to make sure that your club’s Support Agreement is current. To renew, visit or just call NAIC toll-free at 1-877-275-6242, ext 0.

Know thyself: Is your club self-aware?
by Douglas Gerlach

Most share clubs are constantly on the lookout for educational activities to enliven club meetings. Here's an activity that will test your club members' knowledge of the club portfolio and that will give you an opportunity to discuss your club's individual holdings and overall portfolio in a new light.

First, create a worksheet with five columns and the following headings:

  • Name of Stock
  • Ticker Symbol
  • Industry Group
  • Size of Company (small, mid, or large)
  • Dividends?

Add enough rows to accommodate all the stocks in the club's portfolio (but don't fill in the names of the stocks). Then add a couple extra row to make things more interesting!

Before the treasurer's report is distributed at your meeting, give each member a copy of the quiz to see how well they know the club’s portfolio. Ask them to fill in the name of each stock, its symbol, the industry group it belongs to, how big the company is, and whether it pays dividends.

You can make the quiz harder or easier, if you like. For instance, to spice things up, you might also ask everyone to list the exchange on which the stocks are listed. Or to make it simpler, you might include the ticker symbols as a hint.

After everyone has completed the quiz, review each answer with the group. I would wager no one will score a perfect 100%.

The objective is to encourage members to think about the companies in the club’s portfolio, and to freshen their awareness of the stocks that you own. And you might have some good fun in the process, too!

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