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Angie
Angie, Tax Preparer
Category: Tax
Satisfied Customers: 225
Experience:  Bookkeeping, Profit and Loss, Balance SheetsAll types of US Taxes, Tennessee taxes, Personal, business, payroll, sales tax etc.
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I purchased a law practice and make monthly payments on the

Customer Question

I purchased a law practice and make monthly payments on the purchase price (there is a promissory note and deed of trust). The attorney that owned the practice became a judge so for appearance sake a check is not made out to him directly from my firm. Rather my firm pays out the monthly amount to me and then I write a check to him from a separate account. I do not believe that this is considered income to me (because I never see the money) but I want to be sure. I can be reached at my email address at***@******.***.
Submitted: 7 months ago.
Category: Tax
Expert:  Angie replied 7 months ago.
Is the promissory note and deed of trust in your name or the name of your firm? Are you set up as a PLLC? It could be considered income to you (which might benefit you ) If the purchase is in your name...and not the firms name, then you can "charge the firm rent" (which the firm then can deduct as an operating expense.) You would need to report this "rent" as income on the schedule E on your personal tax return, but then can capitalize the purchase and expense interest paid on the purchase. However if the purchase is in the firm name, and you are simply making payments this way to avoid the appearance of wrong doing, it's simply pass through and you don't have to consider it income.
Customer: replied 7 months ago.
It is not a PLLC (I am incorporated with a P.S. designation). I believe that the promissory note and deed of trust are in my name (because I was purchasing the firm and the firm name had not yet changed when the note and deed of trust were drawn up). I will check though.
I am not clear on the matter of charging the firm rent. Could you please explain more about that?
Expert:  Angie replied 7 months ago.
yes. Since you are the owner of the property and your corporation is its own entity, you the individual can receive rent payments from the corporation. You can charge the corporation any "reasonable" amount for rent. It does not have to be the amount of the payment of the promissory note.The payments of the promissory note would not be a deduction for the corporation, however rent payments would be. Since you are the owner, by deed, the corporation can rent from you. This means that any payments paid by the corporation to you would be considered income, and reported on a schedule E on your tax return. On your tax return, you then capitalize the entire purchase of the firm (which would depreciate over a number of years) . You can expense any interest paid on the promissory note, and any other expenses you incur associated with the "rental" It would be the equivalent of having a second home which has a mortgage and renting it out to someone. You report the rent received as income, but can write off any expenses associate with the rental. And, profits, if any, shown on a schedule E are not subject to self employment tax, only Federal income tax. I have several clients with corporations who personally buy equipment, tools, office furniture etc, and they "lease" these items to the corporation. The corporation writes off the lease payment as an expense, and the person reports amounts received on the Schedule E, writes off any expenses, and pays only FIT on any remaining profit.

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