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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience:  Taxes, Immigration, Labor Relations
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My brother is a day trader, and I had given him around ...

Customer Question

My brother is a day trader, and I had given him around $20,000 several years ago. He placed the money in his own account and has paid all the cap. gain taxes or whatever he had to pay on the money over this time period. He has just given me back $55,000. I want to know how I have to classify this gain. I think I should classify it as a long term capital gain, but I have no paper work to substantiate this. I want to be sure I pay what I owe, but am not sure how to go about this. Any help would be appreciated.
Submitted: 8 years ago.
Category: Tax
Expert:  Lev replied 8 years ago.

Based on information provided - you gave your brother a loan that he used in his investments (all investments was under his name - not yours)

You never own any investment assets and you did not have any capital gain from the sale of such assets.

He paid you back the loan amount and the interest. For the interest paid - your brother is required to issue to you and to the IRS a form 1099-int - . That interest would be reported as investment expenses for your brother and interest income for you.

Please coordinate with your brother all reporting - so there will not be any discrepancy.

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 28081
Experience: Taxes, Immigration, Labor Relations
Lev and 9 other Tax Specialists are ready to help you
Customer: replied 8 years ago.
Reply to LEV's Post: LEV,

Even if he does not have a "day trading business" would it be classified as a return of principal and interest? I just want to make sure that I am paying to the IRS what I owe. Somebody else had mentioned that it could be classified as miscellaneous income, however then it would also be open to SS taxes correct?
Expert:  Lev replied 8 years ago.

For tax calculation - the interest income or miscellaneous income (reportable on the line 21 form 1040) would provide the same results - so if you would report it there - the IRS will likely not pay much attention. I would classify that income as an interest income.

You likely meant self-employment taxes? That would be correct if that is a payment for services you provided - however you did not provide any services - and that payment is for use of your money - so it is an interest - so it is not self-employment income and there will not be any self-employment taxes.

As you are going to report that income - please coordinate with your brother - so see may deduct the interest paid to you as his investment expenses.

Customer: replied 8 years ago.

What if my brother doesn't want to issue a 1099-INT? Asked him about this, and he seemed somewhat hesitant to do that. He is not sure how that would affect him since he doesn't run it as a "business". Would he just issue me a 1099-INT from himself?

Thanks so much for your help.
Expert:  Lev replied 8 years ago.

If he issue 1099int - he may deduct amount paid out as interest income - that is actually was. It will be deducted as investment interest - not business loan interest - as my understanding - he used these money for investment and had investment income that was taxable for him. As he paid you an interest - he might issue the form 1099int.

You may claim an income without having 1099int - as you received the income - and it is your income - it should be taxable. My doubts are that the same income was already taxable for your brother and he paid taxes on that amount.

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