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Question: How do I enter a business buyout note?
Answer: Here are the steps to take to enter a business buyout, where assets or income of the business itself are being used to buy out a party:
1. On the "more info" screen for the business, scroll down to the section on business buy-out. There are two yes/no questions.
The first question asks if there will be a business buyout. Answer "yes."
The second question asks who will own the business after the buyout. Select one spouse or the other.
2. Click the link immediately below that says "Click here to enter data for a buyout note or other debt of the business."
3. Fill out the entries on that screen. You will enter the details about the note. Be careful that the interest rate you specify matches the time you are using. For example, if the note pays 12% annually, and you are specifying a monthly time period, you would enter 1% as the interest rate. If the note's term is five years and you're using a monthly period, you would enter the number of payments as 60.
4. If the company is a partnership or corporation, please note that at the bottom of the screen, you have the option to specify whether the payments should be deducted from the cash flow of the partner or shareholder spouse.
5. You have made all the entries you need to make. On the Budget Report for each payment year, you will see that the business income reflects the full payment.
6. On the View/Edit Taxes Report, you will see that only the taxable interest is reported as taxable income. The remaining income is treated as return of principal and is not taxed.
7. Note that the tax treatment to the paying spouse will vary depending on the form of the business. If it is a sole proprietorship, for example, the interest payments will be treated as tax deductible to the paying spouse.