How to avoid double taxation on Capital gains distribution ?

[abhay]

Hi,

Any advice on the given scenario will be appreciated.

Say you have a investor who has invested all the capital and agrees to split profits in an agreed ratio after deducting capital gains tax (in lieu of my advisory services)

As per my understanding I will have to pay the income tax again on the amount I would receive from the above investor.

But since the capital gains tax has already been paid on the above amount how can we structure that we pay the tax only once.

Ideally I would like that we distribute profits and pay taxes individually so that we both can take benefit of our own other deductions.


How is it possible ?

Thanks!

 

[gnome]

Quote from abhay:

Hi,

Any advice on the given scenario will be appreciated.

Say you have a investor who has invested all the capital and agrees to split profits in an agreed ratio after deducting capital gains tax (in lieu of my advisory services)

As per my understanding I will have to pay the income tax again on the amount I would receive from the above investor.

But since the capital gains tax has already been paid on the above amount how can we structure that we pay the tax only once.

Ideally I would like that we distribute profits and pay taxes individually so that we both can take benefit of our own other deductions.


How is it possible ?

Thanks!

Yes, split the profits before taxes. Otherwise, you will incur double taxes.

 

[OldTrader]

Quote from abhay:

Hi,

Any advice on the given scenario will be appreciated.

Say you have a investor who has invested all the capital and agrees to split profits in an agreed ratio after deducting capital gains tax (in lieu of my advisory services)

As per my understanding I will have to pay the income tax again on the amount I would receive from the above investor.

But since the capital gains tax has already been paid on the above amount how can we structure that we pay the tax only once.

Ideally I would like that we distribute profits and pay taxes individually so that we both can take benefit of our own other deductions.


How is it possible ?

Thanks!

Set an LLC up. Net profits here flow through to the members.

OldTrader

 

[I Missed Boat]

Quote from OldTrader:



Set an LLC up. Net profits here flow through to the members.

OldTrader

I was just about to say that.

 

[zman7854]

If taxes are a problem for you then set up an IBC in a foreign juristiction and don't pay any taxes.

 

[abhay]

But since I am not putting any money with the individual investor so I am not sure if I can be a member of the LLC.

 

[Specul8r]

Abhay,

The best thing to do, imo, is contact Robert Greene over at GreenTraderTax.com and sign up for a consultation.

PEACE and good-speculation...

 

[Specul8r]

Quote from OldTrader:



Set an LLC up. Net profits here flow through to the members.

OldTrader

The problem with this, as I understand it, is that if Abhay is not a member of the LLC, then being that the formation is a simple conduit for the single member, the LLC might not qualify for "trader-status" and as such would forfeit the write off of the incentives that Abhay would be entitled to.

If Abhay were made a member though, and the accounts were active enough, then...


PEACE and good-speculation...

 

[OldTrader]

Quote from Specul8r:



The problem with this, as I understand it, is that if Abhay is not a member of the LLC, then being that the formation is a simple conduit for the single member, the LLC might not qualify for "trader-status" and as such would forfeit the write off of the incentives that Abhay would be entitled to.

If Abhay were made a member though, and the accounts were active enough, then...


PEACE and good-speculation...

First, I agree that Abhay would be well advised to seek out a professional to consult with regarding any tax or legal question of this type.

Second, I did not read the original post thoroughly enough it seems. I missed the part where Abhay said he would have no money in the deal. Therefore, the LLC would not serve the purpose I was initially thinking of in terms of distribution of profits. As an aside, I believe that trader status would have nothing to do with how many members are involved in an LLC. I think a single member LLC could have trader status if that is considered an advantage....but again, this is 'my' opinion, and I'm not an expert on taxes.

Given the fact that Abhay is receiving a fee for his role as manager of money, I think the way this shakes out is that Abhay pays tax on his fee income less any expenses he incurs to produce that income....like data feeds, ect.

The question really becomes under what circumstances the fee paid to Abhay becomes a deduction to the investor. Since I'm not a tax professional, and since I don't know all the particulars, it's not a question I would be comfortable in answering. Sounds like it's time for Abhay to consult a pro if he's truly serious about proceeding with his plan.

OldTrader