Have a Tax Question? Ask a Tax Expert
Thanks for asking your question! I'm sorry to hear about your tax issue and I'm going to try my best to help you understand or resolve it.
This activity that you describe is a capital gains activity. This would not be self employment tax, as this is a one-time investment type activity
To lower your tax, I would deduct all expenses incurred to generate this sale, and ensure that I have contributed to retirement accounts
You will report this transaction on schedule D, with one partner reporting 1/2 of the transaction and the other partner reporting the second half
Thank you. Could you clarify - Schedule D for which form? Thank you very much.
Never mind.. just the 1040. Thank you!
You will need to fill out form 1065 for a partnership
and it will list your profit and loss
and the 1065 will issue a K-1 to each of the partners for use on their tax return
No problem. I appreciate it.
So to sum up... I need to fill out form 1065, and this will issue a K-1 form for each partner. Then, I report the capital gains as reported on the K-1 form on Schedule D of the 1040. Is that correct?
You will do schedule e for 1065 income
received from K-1
Okay. So I will use schedule E, rather than schedule D for this transaction?
Correct, Schedule E will signify the income you received via the K-1
Thank you. Will the income reported on schedule E be taxed as capital gains?
Yes, it retains its character
so, if it's capital gains to the partnership it will be capital gains to the individuals
Okay. So to sum up again: I need to file form 1065, and this will issue a K-1 form for each partner. Then, I report the capital gains as reported on the K-1 form on Schedule E of the 1040. This will be reported as capital gains tax. All correct?
And a final question - I believe that as a short term capital gain, it will be taxed at my normal earned income rate. Is this correct?
Yes, that is correct. Short term capital gains are taxed as ordinary income
but there is no self employment component so your tax will still be lower
Will I need to file form 1065 before I file my typical tax form, in order to have the K-1 ready?
Yes, you will need to file the 1065 first to have the K-1 ready
Excellent. Thank you for all of your help - I very much appreciate it. Have a great day.
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