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In lugnet.trains, James Trobaugh writes:
> In lugnet.trains, Eric Kingsley writes:
> > We are set up as a Partnership and file tax returns
> > yearly but that is mostly because one of our "clients" would not write a check
> > to an individual and required that we have a tax ID number. This is less of a
> > hassle than it seems and the money was significant so it was worth it.
>
> Eric, can you tell me more about why you set up the club as a Partnership,
> what where your other options (i.e. non-profit group, Incorporation, etc.)
> The reason I ask is that I've been thinking of doing something simliar with
> the NGLTC but I really don't what direction to take. Currently any money the
> club gets is written to me, I cash it and put it in a folder. But I'm afraid
> that as the incomes grow it's going to become a tax issue for me....and I
> don't need any more of those, I've got enough as it is.
Well I will give it a try, it was about 2 years ago that we set it up so some
details may be a little off. I will also say that I have some very good family
resources in that my Mother is a Lawyer and my father is an Accountant and they
gave us advice free of charge and that was invaluable for us. That isn't to
say you can't do this without those resources but it does help.
As I said we had to have a tax ID number in order to do business with one
client that was ready to pay us a pretty decent amount of money. We looked
into the 3 options you suggested (partnership, non-profit group, or
Incorporation).
First let me do the easy one, non-profit group. This one is pretty cut and dry
and chances are no LUG or LTC would qualify. There are many types of
non-profit groups and the closest we could try to fit under was Educational and
that was a big stretch. You can try but I would suggest not waisting your time.
As for Incorporation it is just a lot more complicated. I don't remember all
the issues but it is much more structured, filing of tax returns is much more
complicated. You need to have officers and I think things like anything owned
within the corporation has to be tracked much more closely. That isn't the
best explination suffice it to say it was a much more complicated solution that
we wanted to get to.
That brings us to the choice we made, partnership. In a partnership you just
need 2 or more partners, the tax return that is filed is just a form that is
attached to your personal tax return and as long as all funds are accounted for
only one partner has to file. There are several ways to get around paying
taxes on the money. One is to put it all back into the club, I.E. spend it on
things for the club. Another is to keep total profit below a certain threshold
which I think is around $5,000 but I am not exactly sure off the top of my head.
NELUG is set up as a partnership of two of its members. This was for
simplicities sake more than anything. If there ever is a tax consiquence that
NELUG is burdened with then those 2 partners are technically responsible for
paying those taxes. We have decided that any tax we have to pay will come out
of NELUG funds. Is there a little risk in being a partner? Yes. Is it
something I worry about? Definitely Not. The amount of money we make is
minimal in the grand scheme of things and because I control the funds as well
as being one of 2 taking the risk I feel comfortable that everything will be
managed so that I won't have to pay anything out of my own pocket.
Now, without giving away anything about how much money we have made I will say
that if we ever made approximately twice what our biggest year to date was then
I would consider asking other members to become "partners" to share the risk.
Although they would have to be core members that I and the other partner are
comfortable with.
Some other issues that we ran into related to just opening a bank account.
Most banks around here seem to require a detailed partnership agreement and a
mission statement plus a minimum balance of at least $2,500. Thats where my
parental units were able to lend a hand. We have basically piggybacked onto
one of their big client accounts which also accepts checks writen to The New
England LEGO Users Group and gets a separate balance statement. The only hook
is that my mother is the only one who can sign on the account. It does stink
when you are 32 years old with a family and you have to call your mommy for a
check for my LEGO club but it was a price I was willing to pay. Plus it is
NELUG's money so it isn't really that bad.
It is hard for me to suggest what another club should do. If it wasn't for the
one client we had we probably would just keep out money in a jar and that would
be OK too. If you are just making a few hundred dollars total in a year I
wouldn't worry about any tax implications but if you are like us and get the
occasional several thousand dollar project then you should probably think of
doing something more official.
Fortunately for us we have a very tight nit group of core members that trust
each other and work well together. Our bank balance and budget are well known
within the group and any spending is done only after a group concenses has been
reached. If you have several factions within your group our approach probably
isn't for you.
I hope that gives some perspective if you have other questions please feel free
to ask.
Eric Kingsley
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Message has 1 Reply:
Message is in Reply To:
 | | Re: Definitions: LUG or LTC
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| (...) Eric, can you tell me more about why you set up the club as a Partnership, what where your other options (i.e. non-profit group, Incorporation, etc.) The reason I ask is that I've been thinking of doing something simliar with the NGLTC but I (...) (22 years ago, 5-Sep-02, to lugnet.trains, lugnet.org.us.nelug)
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