I owned a percentage of a company. I left the company and hence now I am being paid that percent value over the next 5 years. I get a monthly severance pay check for the next 5 years monthly. So each month i get (value of my percent ownership at the time of departure)/(5 years*12 months) How do i declare that on my yearly taxes?
You'll need to sign in or create an account to connect with an expert.
I assume that the "equity" does not involve publicly traded stock and that you have a profit on the sale.
Generally, this will be reported using the Installment Sales interview. Assuming that this is a partnership or S-Corp situation you'll want to wait until you receive your Schedule K-1 information as that information will affect your basis, and the profit.
If the payout schedule does not explicitly provide for an "interest" element - and it sounds like it doesn't - then you must impute a portion of each year's payment as "interest", reported as interest income. (IRS statement:)
-------------------------------------------------------------------------------------------------
If the installment
sales contract does not provide for adequate stated interest, part
of the stated principal may be recharacterized as unstated interest
or original issue discount for tax purposes, even if you have a loss.
You must use the applicable federal rate (AFR) to figure the amount
of stated principal recharacterized as unstated interest or original
issue discount. The AFRs are published monthly in the Index
of Applicable Federal Rates (AFR) Rulings.
-------------------------------------------------------------------------------------------------
This might be a good year to not try and "go it alone" for preparing your income tax return but, instead, getting some competent local professional help.
Tom Young
Still have questions?
Make a postAsk questions and learn more about your taxes and finances.
astrz
New Member
chariset9
New Member
srfrgyrl
New Member
xxrubyxxmacxx
New Member
calderad07
New Member
Did the information on this page answer your question?
You have clicked a link to a site outside of the TurboTax Community. By clicking "Continue", you will leave the Community and be taken to that site instead.