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    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #1

    Nov 26, 2019, 09:52 PM
    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.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #2

    Nov 27, 2019, 09:05 AM
    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
    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #3

    Dec 1, 2019, 08:25 PM
    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.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #4

    Dec 2, 2019, 08:03 AM
    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.
    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #5

    Dec 2, 2019, 07:36 PM
    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.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #6

    Dec 2, 2019, 07:59 PM
    Form W-9 to send him the demographics.

    Form 1099-INT to report the interest

    Form 1099-B to report the capital gains
    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #7

    Dec 3, 2019, 07:12 PM
    What would be the best option from tax perspective?
    The return on investment and profit will be received this year.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #8

    Dec 3, 2019, 08:25 PM
    Then, without a doubt, long-term capital gains is the best tax option.
    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #9

    Dec 7, 2019, 08:09 PM
    Is it possible to spread interest income over past three years?
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #10

    Dec 9, 2019, 05:38 PM
    Not unless you received the interest over a three-year period.
    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #11

    Dec 12, 2019, 06:26 AM
    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?
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #12

    Dec 12, 2019, 06:36 PM
    Dependent on your overall income profile.
    bliss2468's Avatar
    bliss2468 Posts: 8, Reputation: 1
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    #13

    Dec 13, 2019, 07:50 PM
    Please advise what will be the tax rate assuming no other income.
    AtlantaTaxExpert's Avatar
    AtlantaTaxExpert Posts: 21,834, Reputation: 846
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    #14

    Dec 15, 2019, 06:03 AM
    Probably 15%

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