Level 2

Question

Capital Gain as Income On Schedule C

Forum|Forum|3 years ago
October 1, 2022
3 replies
11 views

Hello,

My first time trying the PTO community but I'm not very hopeful because this is probably a very rare item. My client has an LLC that does factoring in essence. All income comes from capital gains. I can't get the net gain to show as income on the Sch C, so that Sch C shows the income and expenses. I could probably live with it not showing on the Sch C except that it needs to show up as income on Sch C in order to show on CA form 568 which needs to be filed.

Anybody had any experience with this?

Thanks,

Joshua Richman, E.A.

ProConnect Tax

This topic has been closed for replies.

sjrcpa

Level 15

If the business is factoring, why would it be capital gain?

The more I know the more I don’t know.

D

Dr_taxAuthor

Level 2

Hello sjrcpa,

Do you have any clients whose business is factoring? I've tried searching to find the tax treatment for that but only find articles that discuss the tax treatment for the company SELLING to the factoring company not the factoring company side. In my client's situation there is a nuance which I think might make it fall under a different treatment. I researched it diligently when he became a client and found a reference that suggested these purchases could be treated as investments, but I didn't save that reference. Not like me, but now I'm thinking I should revisit this. Appreciate input. Thanks.

sjrcpa

Level 15

It depends on whether it is a one off or a business. Sort of like Bob's reference to used car sales.

The more I know the more I don’t know.

sjrcpa

Level 15

I don't think CA cares where it is reported for 568 purposes. They want the Gross and they want their money.

The more I know the more I don’t know.

George4Tacks

Level 15

Schedule C says to me you are dealing with a SMLLC. "factoring in essence" is new to me, but I think that this may be what you are looking for to accomplish what you want to have happen. https://proconnect.intuit.com/support/en-us/help-article/federal-taxes/entering-day-trader-transactions-proconnect/L1Lxb4GPD_US_en_US?uid=l8q4vw0y

You use the words CAPITAL GAIN, which I assume means that the transactions are showing up on a 1099B instead of your desired 1099-K or 1099-NEC.

Answers are easy. Questions are hard!

BobKamman

Level 15

I occasionally deal with clients who are being hounded by collection agencies, not representing the credit-card lenders they couldn't pay but the vultures who buy up the debt for 5 cents on the dollar. I think a lot of medical debt is bought that way, also. So that might be what we're dealing with here. On the other hand, it might be the All-American Widget Receiver Enterprise LLC, buying receivables from the All-American Widget Manufacturing Company Inc. for 90 cents on the dollar.

In any case, I would consider the accounts as inventory, not capital assets. There's a place on the second page of Schedule C for that.

D

Dr_taxAuthor

Level 2

Hello Bob,

Thanks for taking the time to get an answer off to me. I had done some in-depth research, when started working with this client, to determine the classification of his purchases. I wish I had saved my sources. I usually do, but did not in this case. He is a doctor and he buys the rights to accident settlements by paying the surgery center which performed operations due to injury. These are not for resale, they are held until a final settlement is paid. If no settlement is reached, then he gets nothing. These are speculative in nature. My research indicated it was a very close call as to inventory or capital asset. Based on some specific detail in my research I felt capital asset was appropriate. But I can't recall the detail or seem to find where I found that since I've looking again for the last half hour. For one thing, it has investment qualities since the final price is not determined at the time of purchase, but hoped to be an increase over the value paid. Another thing, it does not seem to fit the inventory definition because it is not for sale to customers. The final document is either disposed when money is received as a final settlement, or written off as bad debt loss if nothing is received. Please let me know your thoughts after reading this. Your input is appreciated.

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