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New Member
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Nov 26, 2019, 09:52 PM
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Business profits for past three years
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.
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Senior Tax Expert
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Nov 27, 2019, 09:05 AM
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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
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New Member
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Dec 1, 2019, 08:25 PM
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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.
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Senior Tax Expert
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Dec 2, 2019, 08:03 AM
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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.
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New Member
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Dec 2, 2019, 07:36 PM
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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.
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Senior Tax Expert
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Dec 2, 2019, 07:59 PM
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Form W-9 to send him the demographics.
Form 1099-INT to report the interest
Form 1099-B to report the capital gains
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New Member
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Dec 3, 2019, 07:12 PM
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What would be the best option from tax perspective?
The return on investment and profit will be received this year.
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Senior Tax Expert
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Dec 3, 2019, 08:25 PM
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Then, without a doubt, long-term capital gains is the best tax option.
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New Member
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Dec 7, 2019, 08:09 PM
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Is it possible to spread interest income over past three years?
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Senior Tax Expert
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Dec 9, 2019, 05:38 PM
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Not unless you received the interest over a three-year period.
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New Member
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Dec 12, 2019, 06:26 AM
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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?
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Senior Tax Expert
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Dec 12, 2019, 06:36 PM
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Dependent on your overall income profile.
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New Member
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Dec 13, 2019, 07:50 PM
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Please advise what will be the tax rate assuming no other income.
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Senior Tax Expert
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Dec 15, 2019, 06:03 AM
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Probably 15%
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