Although some clubs choose not to, it's best for the members of the club to have a written partnership agreement. When the agreement is written, the members are better able to avoid disputes about voting on important matters. Most clubs hire an accountant to take care of the books and prepare tax returns, but some clubs have a member who handles these chores. Partnership net income equals all of the profits made on trading stocks, minus losses and expenses. Expenses include things like commissions on trades, accountant and other professional fees and other expenses the club agrees should be paid.
Partnerships are subject to unique rules in the Internal Revenue Code.
Each partnership must file a tax return, but it does not pay any tax on its income. Instead, the tax code treats partnership income as if it was distributed to the partners, even though no cash may have been paid out. If the club sells stock at a profit, each partner must pay income tax on his or her proportionate gains. Consequently, partnerships with taxable income must take into account the needs of the individual partners to pay taxes on that partnership income. While a partnership has many advantages, there are also some disadvantages.