Buy Out tax questions... - Cloth Diapers & Parenting Community

SenoraE · 01-30-2012, 04:30 PM

One of my husband's in-laws worked for a company & was offered a buy out. The company couldn't pay him up front, so they worked out a payment plan over several years. By taking the buy out (he owned part of the company - NOT stocks), he no longer works for the company. The company is paying 5% interest for the life of the payments. Does anyone know if this is considered a loan where he only pays taxes on the 5% or will it be income? He lives just outside of New York City.

ETA - he is in his early 40s, so it is not retirement - just in case that matters!

mrspopo · 01-30-2012, 11:41 PM

I'm not an expert but I believe the interest is just passive income and is taxable. The principal payment should also be taxable but would be counted differently based on how the contracts are written up for the payment plan.

01-30-2012, 04:30 PM	#1
SenoraE Registered Users Join Date: Feb 2009 Location: Buffalo, NY Posts: 3,047 Ratings: 14 Feedback: 100%	Buy Out tax questions... One of my husband's in-laws worked for a company & was offered a buy out. The company couldn't pay him up front, so they worked out a payment plan over several years. By taking the buy out (he owned part of the company - NOT stocks), he no longer works for the company. The company is paying 5% interest for the life of the payments. Does anyone know if this is considered a loan where he only pays taxes on the 5% or will it be income? He lives just outside of New York City. ETA - he is in his early 40s, so it is not retirement - just in case that matters! Advertisement __________________ Get $10 to spend at Vitacost & get free dipes, wipes, vitamins, food - you name it! Big brother Colt + Little brother Mad Max + my DH + me = our happy, thrifty family.EBATES SWAG ME! I've earned over $250 in amazon.com gift cards in 2 years! Muchas gracias/Thanks so much! Last edited by SenoraE; 01-30-2012 at 05:05 PM.

01-30-2012, 11:41 PM	#2
mrspopo Registered Users Join Date: Oct 2010 Posts: 2,533 Ratings: 70 Feedback: 100%	Re: Buy Out tax questions... I'm not an expert but I believe the interest is just passive income and is taxable. The principal payment should also be taxable but would be counted differently based on how the contracts are written up for the payment plan.

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