Looking for Some Tax Information (Vanity)

Self | 12/18/06 | Alberta's Child

[Alberta's Child]

Thanks in advance for any help that any tax-savvy Freepers can offer here. Again -- I'll check with my own tax professional to verify any information I get, but I'm looking at a formal offer along these lines right now and I'm running through a couple of hypothetical scenarios to check for possible financial implications in the future.

[Ecliptic]

Send me $ 300.00 as a retainer, and I'll be glad to answer....

[patton]

The fact that you have to ask if you owe the IRS more money than you made speaks volumns...about our tax code.

(And I have no clue).

[Alberta's Child]

LOL. I assume that would be a tax-deductible expense?

[plangent]

Probably doesn't depend on whatever corporate arrangements you set up. IRS would look at the sale as concluded, regardless of your private extended payment schedule, and
seek to tax at the whole amount on day 1.

[MindBender26]

I'm a (non-practicing) attorney and there is no way I would touch the above. Use a CPA, Enrolled Agent or tax law specialist attorney licensed/admitted in your state and the money you pay him/or her will be returned 10 times over in tax savings.

[Principled]

You'll likely get different answers from professionals. Nobody really knows.

[Alberta's Child]

Tax accounting ping.

[MindBender26]

>IRS would look at the sale as concluded.

Probably not, and there are cash vs. accrual questions here.

There are all sorts of issues about "tax liability creating events" here. He needs PROFESSIONAL advice.

[Alberta's Child]

I suspect you're right about this -- that date will likely be "set in stone" from a tax standpoint, and all taxation will be based on the number that appears on the dotted line when the transaction is executed.

I believe IRS rules basically require the company to pay interest in this case -- since I would effectively become a "lender" if such a scenario were to unfold.

[Principled]

Ya know, all the resources (time, money...) you expend whilst resolving this issue are resources that could be used instead to earn yourself more money.

Sorry. Sick of tax code.

[Ecliptic]

"LOL. I assume that would be a tax-deductible expense?"

If she Itemizes deductions...

[Ecliptic]

"LOL. I assume that would be a tax-deductible expense?"

If he Itemizes deductions...

[Principled]

What would happen if your electronic filing accidentally occured twice? Would you pay twice?!

[Raycpa]

Your question raises a number of potential issues. For example, you may have income when the shares are issued if the FMV exceeds your cost or you may have income when restrictions are released or you may have salary income when you get dividends or you may be able to elect to pay a current tax in order to be certain of future capital gains tax.

However, assuming the transaction qualifies as capital gain and not salary, and assuming you are unrelated and assuming the interest in the company is not a partnership your example would be capital gain to the extent of the cash received (unless you elect out of installment reporting rules).

You need to research Sec 83b.

[Young Werther]

Since these are not publicly traded instruments I believe that you will recognize the gain over the period of payouts. Your investment of 100,000 apprciated to 300,000. The 200,000 gain will be reported over the five year period based on the installments.

Yr One will show a 30,000 payout with 10% of 200,000 as capital or 20,000 capital gain to be taxed. Year 2-5 the payout is 67,500 with the gain of 45,000 recognized. The dirrerence between the capital gain amount and the payout is the return on you capital investment and is not taxable.

www.irs.gov is the place to look for more detail.

Installment Sales If you sold property (other than publicly traded stocks or securities) at a gain and you will receive a payment in a tax year after the year of sale, you generally must report the sale on the installment method unless you elect not to. Use Form 6252 to report the sale on the installment method. Also use Form 6252 to report any payment received in 2006 from a sale made in an earlier year that you reported on the installment method.

To elect out of the installment method, report the full amount of the gain on Schedule D on a timely filed return (including extensions) for the year of the sale. If your original return was filed on time, you may make the election on an amended return filed no later than 6 months after the due date of your return (excluding extensions). Write “Filed pursuant to section 301.9100-2” at the top of the amended return

Good Luck but remember this advice was FREE so you know what its worth!

[rw4site]

If you don't need the money right away, buy it and then die. Your heirs will have it at its value at the time of death. No capital gains tax.

Bingham McCutchen LLP Circular 230 Notice: To ensure compliance with IRS requirements, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used by any taxpayer, for the purpose of avoiding any federal tax penalties. Any legal advice expressed in this message is being delivered to you solely for your use in connection with the matters addressed herein and may not be relied upon by any other person or entity or used for any other purpose without our prior written consent.
Not my disclaimer. I copied it from an email I got today. ;>)

[org.whodat]

You need to research Sec 83b.

That is true, but he could just change his name to "Jose."

[Raycpa]

Changing it to "IRS" is more profitable in the long run.

[Alberta's Child]

I don't think Section 83b would apply here, since I would be buying the shares up front, not receiving them from the company as part of my compensation.