In Which State Should We Start Our Investment Club?
Different states offer different advantages and disadvantages for partnerships.
While all partnerships are required to complete a federal IRS tax return each year, state regulations regarding partnership tax returns are very different. If your prospective members all live in the same state, then you will probably have to officially organize in that state. If, however, you have the choice to locate your club in a state that is more tax-friendly, you can greatly simplify your annual tax return filings if you officially organize in that jurisdiction.
The following is not legal advice but is based on our experience with investment clubs over the past 25 years. As always, consult a qualified attorney or tax professional if you have specificc questions.
Here is a summary guide that can help you with the decsion about where to locate your investment club.
1. IF you have any members in the following eight states, THEN the club must make a state tax filing in those states for those resident partners regardless of where the club is officially located. So, if you have one or more members in Pennsylvania, and none in any other states, then it makes sense to just use the home address of one of the Pennsylvania members for the official "official" location. Since you have to file in the state anyway, it doesn’t make sense to locate anywhere else, especially if you can avoid making multiple state filings in a year. For instance, if you have members in NJ, NY, and PA, then you will have to file three state tax returns (at least) each year.
- New Jersey
- New York
- West Virginia
2. IF you have no members in the above eight states, BUT you have members in any of the following 25 states that do not require partnerships or investment clubs to file an annual tax return, THEN definitely try to locate your club there. This way the club will not have to file an annual state tax return at all. (Just remember that if your partnership has partners in the states in #1, it will have to file in those states even if the club is located in one of the following states.)
- New Hampshire
- New Mexico
- North Carolina
- North Dakota
- Rhode Island
- South Dakota
3. IF you can’t locate in a state that allows you to entirely avoid filing a state tax return, THEN definitely choose one of the following 15 states so that you won’t have to complete your state tax filing by hand or pay a professional tax preparer. The following states require partnerships to file annual tax returns AND are supported by the myICLUB.com Club State Tax Printer. (Note that we support all of the states in #1 above with the myICLUB.com Club State Tax Printer except West Virginia.)
- New Jersey
- New York
4. IF you register in one of the following 10 states, THEN you will have to complete your state tax filing by hand or pay a professional tax preparer, so they are highly unrecommended. These states require state tax filings for partnerships located in their states, BUT myICLUB does not support the state tax filings (because there are so relatively few clubs in those states). If your partnership has members in any of these states (except WV) BUT is officially located in another state, the club will not have to make a tax filing just for those resident partners. And if your partnership has partners in the states in #1 above, it will have to file in those states as well as the state of the club’s official location.
- South Carolina
- West Virginia (the only state not supported by myICLUB but that requires a state filing if any partner is a resident of the state)
5. Finally, if a club must make more than one state filing, a single myICLUB.com Club State Tax Printer purchase can generate the tax returns for multiple states at no additional charge. Most treasurers would rather not do unnecessary tax preparation work, though, so keeping the number of state filings to the absolute minimum is usually a good idea.
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