Deferred Fees - Tax Ramifications
If I contribute portions of my general contracting and development fees as equity, how are those taxed on the back end? As equity, so they are tax free if we refinance/hold and not sell?
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For the company, they are taxed immediately for income taxes purposes, thus creating a deferred tax liability (future taxable income).
For an individual, taxes on equity (if vested) are paid on the excess of the fair market value over the cost in the year of the receipt. If the stock is nonvested, taxes are deferred until the equity vests.
By the way, SBUs are taxed as ordinary income at your personal effective tax rate.
So we’d have to pay the taxes up front of the total contributed amount?
Yes, but this depends on the type of equity you receive. It’s not as clear-cut as I made it seem. But you would declare the equity as income and it would be included in the “Wages” line of your 1040.
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