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Do you provide an accounting consulting, selling my

Customer Question
Do you provide an...

Do you provide an accounting consulting

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Selling my partnership in the business and cashing out, what tax % i have to pay on capital gain and how long I can defer the payment

Accountant's Assistant: Is there anything else important you think the Accountant should know?

Pearl

Submitted: 2 months ago.Category: Finance
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12/23/2017
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago
taxmanrog
taxmanrog, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 935
Experience: Licensed CPA, MA, MST with 31 years' experience. Teach Accounting and Tax courses at Masters level.
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Welcome to Just Answer! Thank you for giving me the opportunity to assist you! I will do my best to help!

Please give me a few minutes to type my response.

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Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

If you sell your partnership interest, generally the gain is taxed at capital gain rates. For sales in 2018, the capital gains rates are still 15% and 20% for higher income taxpayers. However the income level where the rate goes to 20% has dropped to $424,950 from $426,700.

So if your income is less that $424,950 then you will pay 15% tax on the gain. The tax on the gain is due in the year of the sale. So if you sell your partnership interest in 2018, then the tax would be due when you file your 2018 tax return in April 2019. Depending on when you sell and what your 2017 tax liability will be, you may or may not be required to file and pay estimated tax payments to avoid a penalty.

I hope this answers your question. If you have any more, please feel free to ask and I will be happy to answer.

Thanks! Have a great weekend! And Merry Christmas!

Roger

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Customer reply replied 2 months ago
Does IRs required copy of the sale contract?
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

No, this is reported on the Form 8949, which carries to Schedule D. You would just put in the description "sale of Partnership XYZ interest" along with the date acquired, date sold, sales proceeds, and your cost basis (usually your capital account balance after adjustments for your share of current year income or loss, plus distributions or contributions).

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Customer reply replied 2 months ago
What about the if the income level is under 100k for 2017 and the person has 4 dependents in the household
Customer reply replied 2 months ago
Sounds good but what I am trying to say here the capital gain % changes based on the income level bracket of the tax year and if it was below 100k?
Customer reply replied 2 months ago
Thank for replying to my inquirymerry Christmas to you happy new year
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

If the sale is in 2017, then it would be reported in 2017. If your income is under $100k, and you have four dependents and file as HOH, you would still be in the 15% capital gains bracket. The maximum amount for 0% is $38,700. So with $100k of income, less $9,300 for the standard deduction, less $16,100 for personal exemptions, leaves you over the $38,700 amount.

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Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

Please don't forget to rate me, as that is how questions are rated.

And a Merry Christmas to you and have a Happy and Prosperous New Year!

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Customer reply replied 2 months ago
I did not understand it ?
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

What is not clear?

In addition to the 15% and 20% rates, capital gains can sometimes be taxed at 0% if your income is low enough.

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Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

When you stated that your income was under $100k as HOH and 4 exemptions, I thought you were asking if you qualified for the 0% tax rate.

Your income is too high for that.

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Customer reply replied 2 months ago
Here is my case if I cashing out of the buisness 1st month of 2018 and filing for capital gain in 2019 and in 2018 I made no income at all. I have 4 dependents what would be my deductible In 2018 assuming I made 0 income
Customer reply replied 2 months ago
Assuming I made 0 income in 2018 and just live off the share of the buisness
Customer reply replied 2 months ago
The sold share of my partnership
Customer reply replied 2 months ago
Are you still there?
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

If you have $0 income in 2018, the tax rate on the capital gain would be 0%.

When you file your 2018 tax return in 2019, you would not have any tax liability if your only income is the capital gain.

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Customer reply replied 2 months ago
Even through my capital gain was over 500k in 2018 as a result of sellIng my share of the business?
Customer reply replied 2 months ago
Am I sound like confusing here?
Customer reply replied 2 months ago
Are you still there
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

The income for the 0% rate is considered before the capital gain.

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Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

I am leaving to run some errands, but when I get back I will run it through my tax program. I have never had anyone with no income and a capital gain that large.

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Customer reply replied 2 months ago
Ok no problem - I am planning not to have any income in 2018 bec I am selling my share in the business and if I have to pay capital gain tax huge then I would rather not generate any income for 2018 to allow more deductible and reduce the tax % of capital gain in 2018. I will provide you more if you need any fuerther info
Financial Professional: taxmanrog, Certified Public Accountant (CPA) replied 2 months ago

OK. I just ran the projection using my tax software. It used the old law, but that is ok since capital gains were not changed.

The tax on the capital gain, assuming $500k gain with no other income, is about $75k, just as I suspected.

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