Forums: Discussions for entrepreneurs and small business.

I'm considering starting a small financial management business to manage money for anywhere between 10-20 clients. My question, however, is how taxes will work in this situation?

For example, if someone gives me 10,000 and I make 12,000 with it, and after taking the fees I return the rest of their money to them, how do taxes work in this business. I know, of course, that I would pay capital gains tax when I sell their securities, but would they pay tax on their gain, beyond the capital gains tax that I pay when I sell the securities? Would I need to furnish an annual tax form for my clients? Or are the only tax forms involved in this sort of business the forms which record my capital gains and losses that I deal with?

I know this is not the usual business model discussed on this website, but any help would be great. I just want to have a better understanding of how it works before I seek professional help that is going to cost me money. This way, I will know exactly what questions to ask them.

I would nail down the structure of the business you are looking to start before worrying about the tax implications. What you describe is too lose to evaluate the tax rules. For example, are you going to be holding your client's money in trust in separate accounts, pooling client funds together, or establishing some sort of fund where clients buy shares?

As a general rule, if you have discretion to spend the money, the IRS may deem you responsible for taxes on the gains, AND they may deem your client's profits distributed to also be taxable (i.e. double taxation like corporate dividends experience).

Best of Luck,

Monica

Fairfax Virginia Home Staging