Tax for Investors' Earnings

[Jonathan Blanco]

I have a single-member LLC to do fix-and-flips. My investors, which are just family members and are not in the LLC, they give me cash and in exchange I pay them a percentage of the profit after a house I previously acquired with said cash sells (buy, fix, sell). It would be like an interest payment in exchange for loaning me their money. I don't want to pay federal income taxes on the earnings I give them, the "interest" payout. Example, if the house sells for a $50k profit, and I pay them $5,000, my LLC (or me) would pay income taxes on $45k.

So the question is, how can I do that? Is a 1099 form the correct way? 1099-INT maybe? Is this the correct business entity to do this?

Any other info for clarification please let me know! Thanks!

[Michael Plaks]

Quote from @Jonathan Blanco:

I have a single-member LLC to do fix-and-flips. My investors, which are just family members and are not in the LLC, they give me cash and in exchange I pay them a percentage of the profit after a house I previously acquired with said cash sells (buy, fix, sell). It would be like an interest payment in exchange for loaning me their money. I don't want to pay federal income taxes on the earnings I give them, the "interest" payout. Example, if the house sells for a $50k profit, and I pay them $5,000, my LLC (or me) would pay income taxes on $45k.

So the question is, how can I do that? Is a 1099 form the correct way? 1099-INT maybe? Is this the correct business entity to do this?

Any other info for clarification please let me know! Thanks!

Reposting my answer that I gave you on another forum:

Short answer is that you (your LLC, to be more specific) will need to issue your relatives form 1099-MISC, and they - rather than you - will owe taxes on their portion of the profit. Specifically 1099-MISC, not 1099-INT because it is not interest and not 1099-NEC because they do not provide any labor.