A personal friend I know is co-owner of a business. They use a tax preparer recommended by their other co-owner. They are paid around $40k for the year; money that they directly receive in paychecks. At the end of the year the Tax Preparer puts that’s my personal friend makes 80k (adding in the money for the business that year) but they don’t ever receive/or is paid any of the other 40k. Thus at the end of each year they end up owing a lot of money. This person is a little older and just told me this news a couple of days ago. I’m not Tax savvy or anything close, so I wanted to reach out to make sure my friend is not being taken advantage of. I will try my best to answer any follow-up questions to give a more accurate picture of the situation. Thanks for any and all tips/info!
Is it tax fraud if they didn’t actually receive anywhere of that money?
byu/Guilty-Transition-53 intax
Posted by Guilty-Transition-53
3 Comments
There’s not necessarily anything wrong here.
If the business is a partnership or other flow through entity, then your friend would indeed pay tax on his share of the net profit, even if there were no distractions.
If your friend owns 50% of the business and the business netted $80k, the your friend’s portion is $40k.
Can’t really say this is right or wrong without more detail.
This sounds like Phantom income. It’s quite common for small business owners.
Can’t really say without more details. But it’s normal to be taxed on business profit whether that money gets distributed or not. Where that money is or where it went idk. He should ask his cpa questions if there’s something he doesn’t understand.