Hello. Person A invested $90,000 in business of person B in 2017. The money was transferred without undergoing any partnership,etc. Now they want to terminate the so called partnership and person B will return $180,000 to person A. What is the best way to do handle this situation? I would appreciate a response.

This LOOKS like a homework assignment, but I am going to give you the benefit of the doubt and answer it anyway.

Unless Person A actively participated in the business operations of the "Partnership", the extra $90K he is due is either interest on a loan to the company, or his capital gain on his investment. In either case, it is PASSIVE income NOT subject to self-employment tax.

If it is interest, then it is reported on Schedule B.

If it is capital gain, iot is a long-term capital gain which is reported on Form 8949 and Schedule D.

ATE

ATE

Thank you for your response. I understand that if treated as long term capital gain, the tax rate will be flat 20% and tax on interest will depend on total income of the individual. Is it possible to spread interest income over past five years? I am trying to assess what will be the best option if I want to reduce the tax liability. Thanks again.

You can only spread out the interest income over five years if you receive it over five years.

Taxes are due in the year of the receipt of the income.

ATE

What taxpayer identification forms do I need to provide to the business owner if I opt for interest or long term capital gain option? Thanks.

Form W-9 to send him the demographics.

Form 1099-INT to report the interest

Form 1099-B to report the capital gains

What would be the best option from tax perspective?
The return on investment and profit will be received this year.

Then, without a doubt, long-term capital gains is the best tax option.

Is it possible to spread interest income over past three years?

Not unless you received the interest over a three-year period.

What will be the long term tax gain on $90K if filing as single/jointly? Is it taxed at flat rate or is it dependent on other income?

Dependent on your overall income profile.

Please advise what will be the tax rate assuming no other income.

Probably 15%