Tax Law (Questions About Taxes)/Business tax

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QUESTION: I need some help relating to business stock tax. The owner of the company that I have ran for the past 10 years wants to GIVE me his stock in the company. If he were to give me 10% would I have to pay some tax on it. The owner is estimating the business is worth 3 million.

Also if the owner can not give the stock to me, he is thinking that he will stock receiving a pay check form the company. Give me his paycheck and I would pay him for the stock.

ANSWER: Chris,

Thanks for your question.

That is a tricky question.  If the stock came from him and not the company, it would probably be considered a gift and not taxable to you.  However, the IRS could claim that it really came from the company and would be treated as compensation to be included on your W-2.

Same thing if he gave you his aycheck.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: How can we find out what the IRS would really do if he gifted it to me. Also. How could we find out what the taxes would be if he gave me his paycheck to pay for the stock. It sounds like I would be taxed on the money he gave me but would he also be taxed when I gave him the money to purchase the stock.

Answer
You can't find out for certain what the IRS would do in a given situation until it happens.

If he gave you his paycheck it would be a gift, as I stated, and not taxable to you.  However, he would owe taxes on the amount, as it would be considered income to him.

The bottom line on this is that you are trying to receive some stock.  If the company gives you the stock, it is income.  If an individual gives you stock, it is a gift.  However, the complicating factor is that the gift is coming from a 100% owner of the company.  This is a grey area because it could be construed as coming from the company itself.

My advice is to do it clean and aboveboard by having the company issue you the stock; the stock value is included on your W-2; and you pay tax on the receipt of the stock.  When you sell the stock that amount is your basis and would reduce your gain.

John Stancil, CPA

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John Stancil, CPA

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I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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