CPA Question

[Danno]

Good Morning Fellas, I have a question about profits and taxes. Last January I invested money with my sister and her husband's home building company. I took a loan out of my 401K which is contributed by after tax money. Fast forward to now and I've tripled my investment. The market has been very kind to me. My intent was to use this money to pay off debt. My 401K loan, RV, boat. I've honestly never been in this situation and am not sure how to keep the IRS from raping me. I understand I will be taxed on this profit, but is there someway to shield myself from a straight 30%+ tax next year when filing my taxes? Does the fact that the original investment was all after tax money even matter in this equation? Like I said my intent is to pay off debt. I'd love to invest in land, but I'm not ready for that right now. Thanks in advance for any guidance.

[Throwin Darts]

Good Morning Fellas, I have a question about profits and taxes. Last January I invested money with my sister and her husband's home building company. I took a loan out of my 401K which is contributed by after tax money. Fast forward to now and I've tripled my investment. The market has been very kind to me. My intent was to use this money to pay off debt. My 401K loan, RV, boat. I've honestly never been in this situation and am not sure how to keep the IRS from raping me. I understand I will be taxed on this profit, but is there someway to shield myself from a straight 30%+ tax next year when filing my taxes? Does the fact that the original investment was all after tax money even matter in this equation? Like I said my intent is to pay off debt. I'd love to invest in land, but I'm not ready for that right now. Thanks in advance for any guidance.

It will make no difference that the investment was made in after tax funds.

In what form did you make your investment? Did you invest in their company through a purchase of equity ownership? Or did you invest in a single project and upon the sale the profits were distributed to you?

In other words, is your money still invested with them or was it distributed?

[Danno]

It was to help with construction cost and after the sale of the house/houses the profit has been just rolled into other homes builds. Now they are ready to distribute me a check for their tax purposes.

[ddcainjr]

Getting the money through a loan on pay your 401K does not impact your taxes as long as you pay back the loan before you leave your job.

A lot more information is needed to get the tax advice you're looking for. Like asked above, what did you get for your investment (equity/loan)? How is the company set up (S vs. C Corp).

Well worth your time and money to sit with a CPA to get it straightened out.

[bbqfan5909]

You will be paying taxes on the money made for sure and distribution tax is rather high.

[Cliff Dog]

I would consult a good CPA and/or tax attorney. There are lots of tax loopholes that may apply to your situation. They may cost you some money now, but if this is going to be an ongoing yearly occurrence it could save you money in the future.

[Danno]

Thank you gents, I'm hoping to continue with this as long as they let me. It's a small Custom Home Business/LLC. I'll go ahead and seek out a professional to get it done right.

[deerplanter]

Thank you gents, I'm hoping to continue with this as long as they let me. It's a small Custom Home Business/LLC. I'll go ahead and seek out a professional to get it done right.

I just seen you are in my area, we use Leathers for our CPA, he's in Baytown.

[jnd1959]

Thank you gents, I'm hoping to continue with this as long as they let me. It's a small Custom Home Business/LLC. I'll go ahead and seek out a professional to get it done right.

An LLC can be a sole proprietorship, partnership or corporation. If your investment was a loan then you report the income when you receive it. If it was an equity investment you will report the income when it is earned regardless of what you receive unless it is a c Corp. Save yourself some time and get that mailed down before you meet with your CPA. If you want more guidance pm me. I'm semi retired but can give you some info before you meet.

[asu-indian]

We, CPA's get paid good money to answer/solve questions like yours. I wouldn't trust the answers off of a forum. JMO.