consider the contacts you’re making.
by ed mendlowitz
how to build a stronger tax practice
investment clubs are a social activity where people of similar backgrounds or interests
- get together,
- contribute funds in a periodic manner and
- research and discuss suitable investments for the group.
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investment clubs invest the money collectively and maintain a single brokerage account with separate records kept within the club.
i view these more as social gatherings than a serious investment activity because when it is over dinner, the dinner cost is usually unrelated to the investment but if taken into account would greatly reduce any gains. another way to look at this is that each participant contributes money they really do not miss and at some point (upon liquidation) they will get an unexpected check that would pay for a nice vacation trip.
who needs this service
every investment club needs to file annual tax returns and provide tax information to its members. lately some states have complicated this process with added fees and taxes.
many clients are in investment clubs, or are thinking about it. the numbers seem to be declining because of the ease and lower cost of internet trading, but it is still a viable vehicle and provides a social background to the stock picking.
some years ago we were preparing the partnership returns for a friend’s investment club at work for a very nominal (say, below “cost”) fee. mainly this was an accommodation that also put our name in front of about a dozen or so people.
after a few years of this, the company’s controller needed to outsource the tax return preparation. we were asked if we were interested or if we could recommend someone if we were too busy, or if the fee they wanted to pay was too low.
we met with the controller and ended up with the job. three years later we were receiving fees over $150,000 from this client.
why the accountant is suited to offer this service
the accountant is best suited to offer these services because that is what we do. the work is usually among the easiest entity returns we do, and the work provides us with an introduction to potential clients or referral sources.
introducing the client to the service
clients in investment clubs provide us with the schedule k-1 when we obtain their tax information. we can inquire about the service and involvement of the accountant they are using and mention we are always available should they need any additional assistance.
clients who are not in investment clubs can be asked if they ever thought about joining one, or starting one. you can then offer to assist.
we usually do not charge for the organizational work we do, intending better to meet the new members and perhaps spread our sphere of influence.