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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I recently invested in a company with a product that is being

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I recently invested in a company with a product that is being launched in a national advertising campaign next month. I have a contract that will give me a % of the gross profit of all sales. I have another person who went in on this with me that i will share some of the returns with. The question is this: The contract right now is in my personal name- should I get an LLC and have the contract changed to the corporate name? I am concerned about the taxes for myself and my friend that I have to pay a % to.
Submitted: 5 years ago.
Category: Tax
Expert:  Lev replied 5 years ago.

The situation you describes is a partnership.

 

You and your friend will need to file a partnership tax return -- a Form 1065 . Each partner should show their pro-rata share of partnership income (reduced by any tax the partnership paid on the income), credits and deductions on Schedule K-1 (1065), Partner's Share of Income, Deductions, Credits, etc.

 

Let me know if you need any help.

 

Lev, Tax Advisor
Category: Tax
Satisfied Customers: 22704
Experience: Taxes, Immigration, Labor Relations
Lev and 5 other Tax Specialists are ready to help you
Customer: replied 5 years ago.
But do i need to have a corporation and have the checks made out to the corporate name so I can deposit into the corporate bank account and then file a corporate tax return? Right now if the checks are made out to me personally, how can my friend and i file a tax return as a partnership on that money??
Expert:  Lev replied 5 years ago.

You do not have to have a corporation to do any business or investment activities.

 

Based on your information - it looks as you entered into a partnership agreement with your friend

You do not need any registration to from a partnership - you may have verbal or written agreement with your friend and based on that agreement - file a partnership tax return.

Partnership is a separate entity and should file a separate tax return.

But partnership generally doesn't pay any tax - and all tax liability is passed through to partners.

 

If the check will be issued on your name and will be reported to the IRS as such - the IRS will expect that income to be reported on your personal tax return.

If that is not your income, - you might need to add a note to your tax return informing the IRS to prevent possible questions.

You will also report your share of the income.

 

Let me know if you need any help.

 

Customer: replied 5 years ago.
Yes that is my concern. I work full time and pay income tax. This additional money is from an investment but if it counts as personal income, it will put me in too high tax bracket. I will pay taxes on it and then payout my friends share to her and she will have to pay taxes on that? There may be some others who come in on this with me and I may want to invest more and may have to divide the profit with more than one person (by the way, it will not be equal amounts) but right now as it stands, the checks will come in my name. I want to deposit these checks into a seperate account so it will be kept seperate from my personal account- do I need to make this a business account? I am expecting checks on a quarterly basis as long as this product is on the market and they truly could be substantial amounts. Anyway, I am sorry for taking too much of your time. I will accept your answer to this one. Thank you for your time.
Expert:  Lev replied 5 years ago.

partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business.

 

A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return.

You may see more details in the IRS publication 541 - http://www.irs.gov/pub/irs-pdf/p541.pdf

 

As you are receiving an income reported on your SSN , but that income actually belongs to another person - you receive that income as a nominee.

Please see here how to report the income in such situations depending on different types of income - http://www.traderstatus.com/nominee.htm

 

Please provide that information to your tax preparer for considerations.

Let me know if you need any help.

 

 

 

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