Joint Brokerage Account 1099

[RajSaraf]

Me and my partner want to open a joint brokerage account. The question that we are struggling with is, how the income reporting (1099-B or 1099-Misc) will be handled between me and my partner. I understand that the brokerage firm will issue 1099-B/1099-Misc under the Social Security Number of one of us partners. Can this partner pay the tax on his share of the income and issue another 1099 to the other partner and the other partner becomes responsible for his share of the tax? For example, the starting amount of the account is $1,000,000. The amount becomes $1,500,000 ($500,000 profit). Would it be possible for me to pay taxes on my share of profit of $250,000 and my partner would pay taxes on his share of $250,000?

Should we just open a regular joint (JWROS) account with the stock brokerage firm or we should form a corporation (C or S), or LLC or an Investment Club?

Thanks in advance for your attention to this & taking time to respond. 

[Anonymous]

you don't want a C Corp. it would pay federal and maybe state income taxes on its income and then you would be taxed on any money you would take out,  An S-corp avoids the federal taxes at the corporate level but there may be state income taxes and there may also be annual franchise taxes.

I would say the choice is between a partnership or an LLC that is taxed as a partnership. only the broker could tell you if an LLC is permissible. should it loose more than is put in, would your limited liability protect you and the other member from having to make up the loss.  the brokerage may want personal guarantees if it is an LLC .  a partnership/llc offers more flexibility in allocating income should there be a reason to allocate income to r loss differently.   by the way, so both of you are protected there should be a written agreement about how the entity operates and splits income and expenses.  sometimes things blow up and then you end up in court when each saying they agreed to something else. that makes the judge the referee. 

[Anonymous_]

---

@RajSaraf wrote:

Me and my partner want to open a joint brokerage account.

---

What is the rationale behind this course of action; a joint account? Is there a reason each of you cannot open an individual account and grant the other access (or authority) on the other account?

[Critter-3]

"Me & my partner"   ... is this a business or domestic situation ?   

If you are not married then if you open a joint broker's account then the tax statements will be issued in the primary's SS# only which can get messy or impossible if you want to divide the income off the account especially in the sales section.  

[RajSaraf]

Not a domestic situation. The other partner will invest the money. I will use my skills & my time to operate the account. We will share the profits 50/50. I understand that the broker will issue 1099 to my SS#. I was wondering if I could pay taxes on my share of the income & issue another 1099 to my partner for his share of profits so he could pay the taxes on his share of the profits.

I heard there is something like Investment Club. If possible, I would like some light shed on this as well.

Thanks for your help. 🙏

[RajSaraf]

The other partner will invest the money. I will use my skills & my time to operate the account. We will share the profits 50/50. I understand that the broker will issue 1099 to my SS#. I was wondering if I could pay taxes on my share of the income & issue another 1099 to my partner for his share of profits so he could pay the taxes on his share of the profits.

I heard there is something like Investment Club. If possible, I would like some light shed on this as well.

Thanks for your help. 🙏

[Anonymous_]

@RajSaraf 

Start with the link below. Post any further questions after reading the relevant section of the publication.

https://www.irs.gov/publications/p550#en_US_2019_publink100010156

[Anonymous]

I would say that since one of you is performing services while the other is putting in money, a Corporate structure will not work.  you would need to take a salary since you are performing services.  division of profits 50/50 could not be done.  for example, say the Corp made $20,000 in interest income and you took a salary of $4,000 that would leave $16,000 of net profits to be split 50/50 so  you would end up with taxable income of $12,000 (1/2 the net profits and the $4,000 salary, while the other party would end up with taxable income of $8,000. to pay him a salary of $4,000 to even things out runs the risk of the IRS disallowing his salary as a tax deduction. this is even worse because you would end up with the same $12K he would end up with the $8k + the IRS under the tax laws would still also tax him on the $4,000 "salary".  there would also be issues should the corp be liquidated.

this is as more a business arrangement than an investment arrangement. even investment clubs file partnership returns.      https://taxmap.irs.gov/taxmap2018/pubs/p550-011.htm                   filing as a partnership would be prudent.  failure to file a partnership return when required results in a penalty of about $200/momnth per member for a maximum of 12 months. that's $5,000 for every year a return isn't filed. 

i have not addressed other tax issues that could arise