Investment Club Accounting Concepts - Bivio

Investment Activities
which will result in reporting an incorrect amount of capital gain or loss for this and all
future sales of the security.
Security Income (Dividends, etc.)
Securities can produce a variety of different types of income. For most investment clubs
the most common type of security income is cash dividends from corporate stock. When
income from a stock (or other security) is entered in club accounting software, the entry
is made from the “Security” or “Investment” screens in the software.
Be careful not to confuse income from a security with income from cash held at a bank or
broker (perhaps in a money market fund). Income from a security must be entered so it’s
associated with that security. In bivio software, security income is entered using
“Income” under “Investments”. In IClubCentral software, it’s entered using “Cash
Dividends” under “Securities”. See Account Income.
When entering a dividend from corporate stock, one of the items of information needed is
the so-called “ex-dividend date”. It’s also needed for certain types of distributions from
other securities. The length of time a club holds a security before and after the exdividend
date is one factor that determines how the income is treated for tax purposes.
Income that meets holding period (and other) requirements is “qualified” and taxed at a
lower rate than income that doesn’t meet the requirements. Club accounting software at
bivio.com can look up and fill-in ex-dividend dates. Ex-dividend dates can also be found
at www.earnings.com and at www.stockcentral.com (look under “tools” for “research
links” and its “View Dividends” link).
Income from non-US corporations generally has foreign taxes withheld by the broker.
See Foreign Tax.
If your club has arranged for automatic reinvestment of stock dividends, see Reinvested
Income.
Sometimes a corporation pays what’s called a “stock dividend”. Sometimes this is really
a tax-free stock split (common with Tootsie Roll) and sometimes it’s taxable income
(Cemex 2006). If your club finds itself with such an event, it’s best to ask for help.
For information about income from securities other than corporate stock, see Don’t:
REIT, ETF and MLP/PTP Distributions vs. Stock Dividends.
Reinvested Security Income
A club may have made arrangements for automatic reinvestment of dividends paid by a
security. Such arrangements may be made with some brokerage firms, or by using a
Dividend Reinvestment Plan (or other similar service). Conceptually, this is just the same
as receiving the security income in cash and then immediately using that cash to buy
additional shares of the security which paid the dividend. One difference with automatic
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