|
|
|
Frequently Asked Questions about Investment Club Tax Preparation
Does my investment club have to file a tax return with the IRS?
Yes. Investment clubs that are formed as general partnerships do not have to pay taxes directly to the IRS, but every investment club must file an informational return with the IRS. It doesn't matter how new your club is, whether or not you had any income during the year, whether or not you bought or sold any securities — you must still file with the IRS.
When are IRS returns due?
Partnerships must file their returns by March 15 each year, not on April 15 when individual returns are due. (For the 2024 tax year, since March 15, 2025, is Saturday, the deadline is March 17, 2025.) If your club has any issues with meeting this March deadline, the IRS allows you to request an automatic six-month extension using Form 7004. We offer a service to e-File this form for just $13, representing a considerable savings off typical costs of $18-20 of printing and mailing the form via USPS with return receipt (the only mailing method the IRS accepts for proof of delivery), not to mention the added convenience that e-Filing brings. IRS confirmation is usually received within 20 minutes.
Do you offer e-Filing?
Yes. We offer e-Filing for IRS returns as well as for many states at no additional charge. With e-Filing, there's no need to print and mail your return – with a click of a button, your return is automatically and securely submitted to the IRS or state server. You'll receive a confirmation when your return is accepted by the IRS or state establishing the time and date of your timely submission. e-Filing is included free with the purchase of myICLUB Club Tax Federal or Club Tax Federal State. (e-Filing not available for all states.)
What securities does myICLUB Club Tax support?
We support common stocks, mutual funds, exchange-traded funds, cash, and fixed income securities held by investment clubs. Club Tax Federal does not currently support investments in (or in securities that hold) cryptocurrencies, equity options, precious metals, commodities, or master limited partnerships. It also does not support IRS filing requirements for partnerships that include foreign (non-U.S.) partners.
What forms must I submit?
To file Federal tax returns with the IRS, you typically must complete multiple forms and schedules. IRS Form 1065 is used by General Partnerships (like most investment clubs). It's what is called a "pass-though" document — it reports the liabilities of the total tax due for club activities that have been "passed-through" to partners.
myICLUB Club Tax Federal - Basic includes Form 1065 and the following related schedules as needed:
- Schedule D is part of Form 1065 and covers Capital Gains and Losses.
- Schedule K-1 is an individualized report specific to each member of your club covering their individual share of the tax liability. Each member receives their own Schedule K-1 which they must submit to the IRS with their personal tax returns.
- Schedules K-2 and K-3 are used to report foreign income received.
- Schedules B-1 and B-2 are also generated if required.
Larger investment clubs have more complex returns and may require additional forms such as Schedules L, M-1, and M-2. These forms are supported in our Club Tax Federal - Deluxe Add-On which must be used by these larger clubs.
Larger clubs are defined as:
- Clubs with 30 or more partners (based on the number of K-1s in Form 1065), OR
- Clubs that have receipts (income) greater than $250,000 in the year, OR
- Clubs that have total assets of $1 million or more (the sum of the cost basis of all securities plus cash on hand at year end), OR
- Clubs that file Schedule M-3. Schedule M-3 is optional unless the club has more than $10 million in assets (as defined above) or more than $35 million in receipts (as defined above), then schedule M-3 becomes required.
The vast majority of myICLUB investment clubs will use myICLUB Club Tax Federal - Basic to prepare their federal return.
What about state tax returns?
Tax filing procedures differ from state to state. Some states do not require investment clubs to file returns, while others provide stiff penalties for investment clubs that do not file. Here is what we know about current state requirements.
Clubs located in Arizona, California, Colorado, Georgia, Indiana, Iowa, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New York, Oklahoma, Oregon, Pennsylvania, or Wisconsin must file a return with their state agencies. Clubs located in Illinois must file a state return if they have any partners who reside outside Illinois. Fortunately, clubs in these states can use myICLUB Club Tax State to generate the necessary forms.
Clubs located in California, Illinois, or New Jersey should also be aware that they are subject to certain conditions.
Clubs located in Alabama, Arkansas, Connecticut, Hawaii, Kentucky, Nebraska, North Dakota, South Carolina, Tennessee, Vermont, or West Virginia are probably required to file annual tax returns with their state, but myICLUB does not offer a product for those states. (NOTE: This is not a definitive list, so check with your state to confirm its requirements if it is not listed here.)
Finally, an increasing number of states –– including Georgia, Indiana, Missouri, New Jersey, New York, Oregon, Pennsylvania, and West Virginia –– require partnerships to file a return if the partnership has any partner who resides in that state, regardless of where the partnership is officially located. This may require some clubs to file with more than one state. If you use myICLUB Club Tax State, you may generate the needed returns for additional states for the same club at a reduced additional cost.
If you have any questions, contact your state's tax agency (such as the Department of Revenue or Department of Taxation) for more information about that state's requirements. Note that tax laws do change, so even if a state did not require filings in the past, they may have changed requirements for the current tax year.
To learn more about filing your club's tax returns, visit our Club Tax Support page or the official IRS website.