I am self employed/freelancer and do many sorts of business ventures. Two years ago I had the opportunity to loan money to an LLC corporation as a business income opportunity. We wrote up a contract of agreements, etc.
I reported for tax year 2018 this loan that I invested into as business income. I recently received a cp2000 form from the irs stating that I failed to report this as interest like a bank savings account or cd. Thoughts?
The IRS sent you this letter because if you receive loan payments for this, you must report the interest paid on these payments as interest income unless this was an interest free loan.
When I filed my taxes I did report the interest as a business income but they are saying that they want it as a savings account/cd type of interest. Can this interest not be reported as a business income since it is my primary income as a sole proprietor?
i would report it as business income from a loan but you can't argue with the IRS. It depends on the examiner that sent you this letter and what their thought process is.This is not the same as bank interest earned but what do i know. I am only a lowly but humble tax expert.
I have the opportunity to dispute it and the amount they are wanting me to pay is quite substantial.
When I filed the interest as business income i notated this income on line 6 of Schedule C (other income.) All it asks on turbo tax is a brief description in the cash or checks section.
The company reported the interest to the IRS on a 1099-int.
Was there a better section to notate this income? I am obviously needing to know for this year's taxes as well.
Thank you for your responses thus far!
Interest has to be reported as interest.
It can't be reported as business income, because business income is taxed differently.
But if you previously reported the interest income as business income you should not be taxed twice on it. The interest income should come off your business schedule and be reported as interest income.
This should either be a wash, or it should reduce your tax.
You should dispute the amount you have to pay with the IRS. Explain that the income was reported elsewhere on the return, and if they want to add interest income they need to reduce business income in an equal amount.
And actually you paid more tax on it by reporting it on Schedule C as self employment. You also paid self employment tax on it. So tell the IRS that. You can probably amend your return and take it off Schedule C and add it to interest. You might even get a refund.
This comment is identical to my situation. I have reported it on Schedule C but the IRS thinks it was under reported. I am needing to know how to address the situation.
I played around with the amendment portion of turbo tax just now and it will not "be a wash" or give a refund if i change it to personal interest. My business expenses for 2018 heavily offset alot of the business income for that year. When i remove the business income from (other income) and put it to personal interest the business expenses are not able to compensate the income.
Is this current year? Can the 1099-Int be re-issued in the name of the business rather than using your social security number?
If you are in the business of lending money or if you are paid interest on notes receivable that you were given by your customers, you would report that interest income on your Schedule C or C-EZ. In that case, the interest paid should be reported on Line 6 of Schedule C or Line 1 of the C-EZ.
The nominee process would allow you to report the interest on Schedule B and 'move' it the the Schedule C.
Your real issue is with the IRS examiner who needs to be persuaded to your line of thinking.