I am being offered an opportunity to buy a percentage of a business. I would be required to sign a promisory note with seven equal annual payments. The money to make the payments will come from my share of the annual net profits of the business over the seven years. My question is, will I incur an income tax liability on my annual share of the profits when that money is used as the payment of the promisory note.
2007-01-28 02:58:41 · 3 answers · asked by mainlandd 1 in Business & Finance ➔ Taxes ➔ United States
Look at it this way: Pretend you got a bank loan to buy a percentage of the business. You then used your share of the profits to pay the bank. Would you be taxed on the profits? In reality, the only difference between my example and yours is who provided the loan. My not so educated guess is, yes, you will owe taxes on the money.
2007-01-28 05:07:08 · answer #1 · answered by STEVEN F 7 · 0⤊ 0⤋
It depends upon whether the note is an obligation of you or the business. Since you will probably be signing the note personally then you can deduct the note interest as investment interest on Schedule A. The business profits you receive will of course be taxed to you.
2007-01-28 11:23:41 · answer #2 · answered by spicertax 5 · 0⤊ 2⤋
Most likely, yes. Consult a CPA though, and ask this question and also have him or her look over the whole agreement before you sign anything.
2007-01-28 12:28:23 · answer #3 · answered by Judy 7 · 1⤊ 0⤋