I was recently named a partner at my firm (which is held out as a professional association), to the chagrin of some and delight of yet other partners. As we attempt to square everything away, and I jockey for equity partnership, versus mere profit sharing, I am being told by the less delighted that receiving equity partnership (ownership) without buying into the firm would result in a huge tax liability to me at the end of the year. Admittedly, I never was a numbers' person, but this doesn't have the ring of truth, as I suspect the firm itself will be taxed at year's end, as I will be, for that which I take home. That is, it sounds incongruous that say if the firm is worth $20,000,000, that I would be taxed on my share of the new-found ownership plus my take-home gross income. For example, say my ownership interest is worth $400,000.00, and my annual salary $250,000.00--how can I be taxed on $650,000.00 worth of income, when I only took home $250,000.00? If anything I would expect a later sale of my interest or buy-out could trigger taxation on the ownership interest (the $400,000.00), but at that point I would be realizing the actual monies as income.
Am I being fed hogwash by the naysayers, to get me to elect a profit-sharing agreement versus ownership??
Please help!!
