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I own a Partnership Business with my brother in law and in…

I own a Partnership...

I own a Partnership Business with my brother in law and in August he Wanted out. We wrote up a contract agreeing to remove his name from the business and agreed to continue to pay on his personal credit card that was used to buy products for the business. The amount is stated in the contract and the required monthly payment required. My question is if I pay him in his name directly will he have to claim that as income or should I pay the card company directly? Also what are the steps and forms required by the governments to change the company from a partnership to a solo owner?

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

I dont think so

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Answered in 6 minutes by:
11/20/2017
Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 31,206
Experience: Personal Investment, Tax Preparation
Verified

The issue is that the partnership exists if there are at least two partners...

When only one partners left - that is NOT a partnership anymore...

In this case - you will need to formally dissolve the partnership - by filing a final 1065 tax return and issue final K1 statements to each former partner.

Tax liability for each of you will be determinate based on that K1 statements.

After that you will run a business as a solo proprietorship - and only you personally will be responsible for taxes on realized income.

If you still will owe the money to your former partner that may not be immediately paid back - that will be a loan - and when not paid back - that amount generally will not be taxable regardless if paid directly or not.

Let me know if you need help with determination.

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Customer reply replied 2 months ago
Do I have to file for new tax Id numbers and EIN# ?
When do I file the 1065 and final K1 Does need to be know or at the end of the year?

Yes - when the partnership is dissolved - and the final 1065 tax return is filed - the EIN assigned to that partnership will be dis-activated,

and for your solo proprietorship business - you may either use your own SSN or may apply for a new EIN.

You may dissolve the partnership on the last day of the year. That might be easier for accounting and tax reporting purposes.

But that is not required.

You may dissolve the partnership any time - in this case business activities for the part of the year will be reported on the final 1065, and starting next day - you will separately account business transaction to be reported on your individual tax return as a solo proprietorship.

If you choose to dissolve the partnership at the middle of the year - you will file the final tax return for the short year.

Lev
Lev, Tax Preparer
Category: Finance
Satisfied Customers: 31,206
Experience: Personal Investment, Tax Preparation
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Lev
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