Making the Investment Club Treasurer's Job Easy...

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1 Making the Investment Club Treasurer's Job Easy... by Doug Gerlach President, ICLUBcentral Inc. September } Use Questions box in GoToWebinar applet to type questions. 2 Copyright ICLUBcentral Inc., September 2011 Page 1

2 } Question: What is cash-in-lieu and what do I do with it? 3 } Question: What is cash-in-lieu and what do I do with it? } Answer: This is cash received instead of stock in many mergers, splits, spinoffs. Brokers won t handle fractional shares of stock. Instead, broker will give you cash instead of fractions of shares. myiclub & Club Accounting 3 handle cash in lieu as part of these transactions. For tax purposes, counts as sale of fractional shares. 4 Copyright ICLUBcentral Inc., September 2011 Page 2

3 } Question: Where do I find the information needed in order to enter mergers, spinoffs, and other transactions in my club s books? 5 } Question: Where do I find the information needed in order to enter mergers, spinoffs, and other transactions in my club s books? } Answer: Check the company s website in the Investor Relations section. The ICLUB.com website also has information on non-standard transactions. 6 Copyright ICLUBcentral Inc., September 2011 Page 3

4 } What is it? Company issues additional shares to current owners. } What do you need to know? Payable date. Split ratio. } What is affected? Original cost basis & current price are adjusted. Total return is NOT affected. 7 } Securities > Stock Split 8 Copyright ICLUBcentral Inc., September 2011 Page 4

5 9 10 Copyright ICLUBcentral Inc., September 2011 Page 5

6 11 } What is it? Company reduces number of shares of current owners. } What do you need to know? Payable date. Split ratio. } What is affected? Original cost basis & current price per share are adjusted. Total return is NOT affected. 12 Copyright ICLUBcentral Inc., September 2011 Page 6

7 } Securities > Stock Split Copyright ICLUBcentral Inc., September 2011 Page 7

8 15 16 Copyright ICLUBcentral Inc., September 2011 Page 8

9 } What is it? Company issues additional shares to current owners. } What do you need to know? Payable date. Amount of dividend (typically percentage). } What is affected? Original per-share cost basis & current price are adjusted. Total return is NOT affected. 17 } Securities > Stock Split 18 Copyright ICLUBcentral Inc., September 2011 Page 9

19 1.8122% Stock Dividend is recorded as 1.

10 % Stock Dividend is recorded as to-1 Stock Split. 20 Copyright ICLUBcentral Inc., September 2011 Page 10

11 21 } What is it? Company issues check to owners in legal settlement. } What do you need to know? Payment date. Amount of settlement. } What is affected? Treated as Return of Capital, so stock s original cost basis is reduced. 22 Copyright ICLUBcentral Inc., September 2011 Page 11

12 } Securities > Cash Dividend 23 ABCD Type: Return of Capital 24 Copyright ICLUBcentral Inc., September 2011 Page 12

13 ABCD ABCD Company 25 } Question: How are litigation settlements handled if stock is no longer owned by the club? 26 Copyright ICLUBcentral Inc., September 2011 Page 13

14 } Question: How are litigation settlements handled if stock is no longer owned by the club? } Answer: Enter as a long-term capital gains. In Club Accounting 3: Reactivate security first. 27 } Securities > Cash Dividend 28 Copyright ICLUBcentral Inc., September 2011 Page 14

15 XYZ* Type: Long-term Capital Gain 29 XYZ XYZ Company 30 Copyright ICLUBcentral Inc., September 2011 Page 15

16 } Question: How are litigation settlements handled for partners who are no longer members of the club? They would have been members when the club owned the share under settlement. 31 } Question: How are litigation settlements handled for partners no longer members of the club? They were members when the club owned the stock under settlement. } Answer: While the partner may have been a member in the past, clubs work on a cash accounting basis, so income is recognized only when received. Former members are not entitled to any part of the settlement. 32 Copyright ICLUBcentral Inc., September 2011 Page 16

17 } What is it? Two companies merge. } What do you need to know? Ticker symbols of two companies. Effective date. # of shares received. Price per share on effective date. Any cash received. 33 } Securities > Merger of Securities 34 Copyright ICLUBcentral Inc., September 2011 Page 17

18 35 36 Copyright ICLUBcentral Inc., September 2011 Page 18

19 37 } Question: Are there any tax consequences to mergers? 38 Copyright ICLUBcentral Inc., September 2011 Page 19

20 } Question: Are there any tax consequences to mergers? } Answer: Most mergers are nontaxable transactions. Occasionally, taxable mergers do occur, at least for owners of one of the companies. Generally entered as two transactions sell and buy instead of as a merger. See ICLUB.com Support site for help. 39 } What is it? Company spins off part of company into separate company. } What do you need to know? Ticker symbols of two companies. Effective date. Remaining basis percentage. Price per Share on Effective Date Shares and any cash received. } What is affected? Part of original cost basis is assigned to new company 40 Copyright ICLUBcentral Inc., September 2011 Page 20

21 } Securities > Spinoff Copyright ICLUBcentral Inc., September 2011 Page 21

22 43 44 Copyright ICLUBcentral Inc., September 2011 Page 22

23 } Question: We received a small number of shares in a spinoff. If we sold them, the brokerage commission would nearly wipe out the entire value! What should we do? 45 } Question: We received a small number of shares in a spinoff. If we sold them, the brokerage commission would nearly wipe out the entire value! What should we do? } Answer: Sell! They are a distraction. They will never contribute to club s total return. 46 Copyright ICLUBcentral Inc., September 2011 Page 23

24 } What is it? Another company buys company you own. } What do you need to know? Effective date. Cash received. } What is affected? Treat as normal sale of stock. 47 } Use Questions box in GoToWebinar applet to type questions. 48 Copyright ICLUBcentral Inc., September 2011 Page 24

25 } Question: Can the software be changed to deduct foreign tax from your cash balance as well as deducting from the security? 49 } Question: Can the software deduct foreign tax withholding from cash balance as well as from the security? } Answer: Dividends paid to US residents on foreign companies have taxes withheld from gross dividend amount. } Full dividend is taxable in US, partners get US tax credit for foreign taxes withheld. } Net amount of dividend (gross tax) is received in cash by club. } Treatment in myiclub emphasizes the two sides of the transaction. 50 Copyright ICLUBcentral Inc., September 2011 Page 25

26 } Question: We own a stock that recently had a spinoff and a reverse split. How do we enter it in the books? 51 } Question: We own a stock that recently had a spinoff and a reverse split. How do we enter it in the books? } Answer: The ICLUB.com web site Club Accounting Support section has instructions for many unusual mergers, splits, and spinoffs. } If not found there, contact ICLUBcentral Customer Support. 52 Copyright ICLUBcentral Inc., September 2011 Page 26

27 Copyright ICLUBcentral Inc., September 2011 Page 27

28 } Jim Thomas } Russell Malley } Investment Club Accounting Concepts by the BetterInvesting Puget Sound Chapter 55 myiclub.com ICLUBcentral Inc. Write me: gerlach@iclub.com 56 Copyright ICLUBcentral Inc., September 2011 Page 28

Preparing Investment Club Taxes By Doug Gerlach, ICLUBcentral Inc.

Preparing Investment Club Taxes By Doug Gerlach, ICLUBcentral Inc. Doug Gerlach You don t need microphone. If sound or graphics are choppy : Turn off all unnecessary programs. Don t connect wirelessly. Or listen using telephone. For problems, contact GoToWebinar: 1-800-263-6317