Non-compete agreement

[FamilyW]

I sold an LLC (for a loss) two years ago and have a 5 year non-compete agreement I received a 1099-MISC with box 3 filled in showing the non-compete agreement payment.  I had reported the entire amount with the sale of the business two years ago.  How do I report this for this year and the remaining years to come?  The non-compete agreement payments are being used to pay back the loan for the start up costs of the LLC. 

[MonikaK1]

If the amount shown on Form 1099-MISC is part of the amount already recognized from the sale of the business in a prior year, you can enter the Form 1099-MISC in TurboTax, and then enter it again with a negative figure and description, so that it is accounted for on your return.

When you are signed into your TurboTax Account use the following steps to enter the income:

1. Click on Federal > Wages & Income.
2. Scroll down to the Other Common Income section. 
3. Click on the Start/Revisit box next Form 1099-MISC. 
4. On the screen Did you get a 1099-MISC?  click on the Yes button.
5. On the next screen, Let's get the info from your 1099-MISC, enter the information from the 1099-MISC.

Where prompted, indicate that it did not involve an intent to earn money (so that it won't incorrectly apply self-employment tax).

Once you have entered the income you can use the following steps to enter it as a negative figure which will result in zero income being added to your other income.

1. Click on Federal > Wages & Income.
2. Scroll down to Less Common Income section.
3. Click on Start/Revisit box next to Miscellaneous Income.
4. Scroll to Other Reportable Income Click Start/Revisit.
5. Enter Description and negative amount (ex. -500).

[FamilyW]

The non-compete agreement is paid incremently, starting at $5K and ending at 25K the last year.  Will that be a concern? 

[MonikaK1]

If the payments are being made according to the terms of the sale, which you said resulted in a loss, it doesn't matter that the later payments are larger. However, if part of the payment represents interest, then the interest portion is reportable as income. See this TurboTax tips article regarding imputed interest.

If you had a gain on the sale instead of a loss and reported the gain using the installment method, then a portion of the payment would be reported as income each year. An installment sale is a sale of property where you receive at least one payment after the tax year of the sale. If you realize a gain on an installment sale, you may be able to report part of your gain when you receive each payment. This method of reporting gain is called the installment method. You can’t use the installment method to report a loss. You can choose to report all of your gain in the year of sale.