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If the company is willing to pay of your loan to your sister then the amount that she receives for the interest will be taxable to her. The company must have the W9 to show that she is exempt from backup withholding on the interest payment. The company should then issue her the 1099 so they can use the amount to claim as an expense for the company.
The amount that she would be getting will be interest and part of the principal amount. So, would these be reflected differently on the forms. I am not clear. Would the exemption from backup witholding be on the interest payment or the principal amount repayment. I was under the impression that if you get a 1099 form you always need to file tax. Would there be a different W9 form for this to show she is exempt from backup witholding. Thank You
O.K, This is something that never came up before in my discussions with my previous attorneys - that I would have to pay the tax on the principal. I was told that paying the amount directly to my sister ensures everything is nontaxable except for the interest. So, we were given to understand that I and my sister do not have to pay any taxes except for the interest because they are paying her directly. Thanks
If the company is looking at this as a loan to you, if the company forgives the loan to you then the principal amount will be taxable to you. If you are required to repay the loan then it is not taxable to you. The interest that they pay to your sister will be taxable to her regardless.
As of now the company would be forgiving the loan after 2 years. So, when would I have to file it in my W2 form.
I am asking because the company is also not very clear on some of the issues. Like I said earlier the loan would be forgiven if I worked for at least 2 years with them. Otherwise I would have to repay the entire amount plus interest. In that case do I still have to show it on the W2 of my first year, or after the loan is forgiven.
Second question, if the company while giving the w9 form to my sister does not exempt from backup witholding, and the 1099 shows the entire amount - principal and interest, would that mean she pays the taxes, and I do not have to show it on my W2 form.
And again, I am confused, the exemption from backup witholding for my sister: is it for the interest or principal?
I think I am clearer on this issue now. But like I said before - I am not sure the company is very clear about it too, because this has been going on for quiet some time now. So, I am asking the same question again - if in the 1099 form to my sister they show the full amount - principal & tax, then she would be paying the tax. (I could then pay my sister whatever tax she had to from my personal funds). But in that case if my sister officially paid the tax, then what would that imply for me - my w2 forms, would I still be required to pay. I am all confused about this.
The company said that they would pay my sister, and at the time of filing taxes, she would have to calculate the interest, and her tax preparer would have to say that since part of the amount is interest, only that alone is taxable. So, from what I understand, as of now, they would probably reflect the entire amount on the 1099 form.
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