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Discussion in 'Business Operations' started by alpine692003, Feb 24, 2006.

  1. alpine692003

    alpine692003 LawnSite Bronze Member
    Messages: 1,502

    Hey guys,

    I was wondering, if you were to pay an investor every month lets say $200 a month, how would you label that on the cheque that you were to print on the bottom for your records and filing records?

    Investor payment #1 of 300???? Investor bonus, investor pyament??
  2. mastercare

    mastercare LawnSite Senior Member
    Messages: 289

    If you have an investor, it depends on how you've set it up. Here are just some possible scenarios.

    A guy loans you $10,000, you pay him $200 a month in interest. You eventually write him a check for his $10,000 and you're out of debt. This is similar to a company selling a bond. In this case the interst you're sending him should be "interest income paid."

    If you're using the same scenario, and paying a combination of interest and principal to him each month, then you're paying him "loan re-payment of principal and interest." - (if this is a multi-year agreement, separtae your interest & Principal for your tax records)

    Or, maybe this person is has given you $10,000 and is not loaning the money to you at all. Maybe he owns part of the biz, and you're paying him a $200 profit off of it. In that case you simply pay "Profit distribution to owner (shareholder)." - Make sure you send him a 1099 tax statement so that he pays the taxes on his portion of profits----- not you.

    Or, in the above scenario, rather than splitting up profits....you simply send him a "dividend" check. The thing to keep in mind is that a dividend is technically a "refund of unused monies." So, he gives you a lump some of money, and you don't need that much, you are returning $200 a month to him of "unused monies." That is a mutually owned company works (Credit unions pay you dividends on your savings account....not interest since each customer is also a member, and owns a share of the business based on the balance in their account). Remember that if you use the term "dividend" you need to send him a 1099 div statement rather than a 1099-misc.

    Hope one of these scenarios works for you....I guess it depends on what your agreement is.,
  3. alpine692003

    alpine692003 LawnSite Bronze Member
    Messages: 1,502

    Thanks a lot for the information, it helped out a lot.
  4. YardPro

    YardPro LawnSite Gold Member
    Messages: 3,570

    great explination

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