Question On Paying Out Profit To An Investor
Hi I have a tax/legal question. If I am paying an investor back thier original money plus the profit made on the deal, how do I show that at tax time? I mean they will be paying taxes on thier share of the profit yes? Do I send in like a 1099 form or something like that? I just don't want to get stuck paying taxes on someone elses money! Thanks
Joe
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Probably the simplest, and most widly used method would be to form your partnership with an LLC. Your partnership agreement will dictate how the income and expenses are allocated to each member of the partnership. At tax time Each of you will fill out a K1 showing $20K profit for one and $40 profit for the other (or whatever you agree) which is then taxed as personal income for each of you.
Well unfortunately we are not going to be able to do the LLC. I mean I will have the promissory note that states the amount of the ROI. Will that be good enough for the IRS? or is there another way to show that I paid him a return? The problem is that we have to move quickly on this deal and I don't think there is goingto be time to set up an LLC
FYI, an LLC can be set up in one day in most states.
So "not enough time" to use an LLC?
Not usually true.
was your deal with the investor in the form of a note or a partnership?
Partnership divisions are reported on form K-1 interest payments on private notes are usually simply deducted on your return. I suppose you could also send a 1099-- check with your accountant
I agree with thr LLC way I think its the best way, At least I think So. :-D
You guys are overcomplicating things. Sure, if the properties/investor money come through an LLC, you can give investors K-1 forms. If you don't want to bother with that, to be compliant with IRS, just give your investors 1099-INT forms. If they're incorporated(i.e. money were given by a corporate entity), you don't need to give them 1099. Just do that and don't worry about IRS. If they audit you and you can show them where the money went and came from, you'll be fine.
Compwhiz, Thanks thats the answer I was looking for! and thanks to all the other thoughts too. I am going to be forming an LLC here soon so it will be a little easier then also
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