My Notes on Tax Treatment of Investment Income .. information derived from Chat GPT, and not approved by or reviewed by Del Mar. Here is a general breakdown of how to handle Delmar Income for tax purposes: 1. Money You Put In (Your Basis) * The amount you invest is called your cost basis. * Even if it is not withdrawable, it still counts as your initial investment. * You do not report it when you invest; you report it when there is a return. 2. Money You Get Back (Your Return) * Any amount you get back that is greater than your basis is generally a gain. * That gain is reported as income .. usually either capital gains, dividends or interest income, depending on the nature of the investment. * DelMar may report the gain as DIVIDENDS, since that term appears on the platform display 3. How to Report It * If this is a business investment (e.g., you are a partner or shareholder), you may receive a Schedule K-1 (from a partnership or S corporation). It will show your share of income, deductions, and credits, which you will report on your tax return. * If this is a more informal investment and you just receive money back in excess of what you gave, that might be considered a capital gain. You would report it on Form 8949 and Schedule D. * If it is treated more like interest income, you would report it on Schedule B (e.g., if you lent money rather than invested for equity). For Dividends, please check. ----- 4. What If You Cannot Withdraw the Investment (Delmar case)? * That does not necessarily change your reporting. * The fact that the initial investment is not returnable does not mean it isn't your cost basis. * When you realize income (get paid), the IRS cares about what you got versus what you put in. Reporting method is based on the type of investment .. was this an equity stake, a loan, a profit-sharing arrangement, or something else? It sounds like a structured investment or private fixed-return investment, kind of like a private annuity or promissory note with guaranteed returns. Money goes in, can not be withdrawn, and a guaranteed return is paid out over time .. here is how it typically works from a tax perspective: 1. Tax Treatment: Ordinary Income Since you are receiving a guaranteed return, the IRS likely considers those payments as interest or dividend income rather than capital gains. This is not an equity investment where you are buying shares or ownership .. it is more like lending money in exchange for a fixed return. 2. How You Report It * Each year you receive payments, you report the portion that is interest (the amount over what you put in). * The original amount you invested is considered your cost basis, and each payment you receive may include a return of principal (non-taxable) and gain (taxable). If the investment does not give you documentation breaking that out, the IRS expects you to: * Use the annuity exclusion ratio (for fixed-period payouts), or if over $1500, treat the entire amount over your basis as income 3. Example * You invest $10,000, non-withdrawable. * You receive $12,000 over 2 years. * You gained $2,000. You would: * Report the $2,000 as interest/dividend income, spread over the years as received. * The $10,000 return of capital is not taxed. 4. Watch for a 1099-INT, 1099-DIV or 1099-MISC * If the person or company paying you reports the payments to the IRS, you will likely get a 1099-INT (for interest) or 1099-MISC (for other income). * You must match how you report it to what they report. ---- (If this is under a written contract or if there is a set interest rate or payout schedule, that can help narrow it down even more.) The IRS taxes you based on the income you are credited, not what you actually withdraw or net after fees. * So even if there is a fee for withdrawing, that fee is not deductible unless you are investing as a trade or business (likely not, if this is a personal investment). 2. Type of Income: Likely Interest (Report on Schedule B) * Because of the predictable, time-based return, the IRS sees this as interest income, not capital gains. * Each day you are credited ~1%, that amount is considered interest income for that day. * You report the total credited amount during the tax year, regardless of when you withdraw it. How to Report It on Taxes: If You Receive a 1099 (INT or MISC): * Match your reported income to the amount on the 1099. * If a 1099-INT, you report it on Schedule B (Part I). * If a 1099-MISC, it goes on Schedule 1, line 8z as Other Income.” If You Do not Receive a 1099: * You are still responsible for reporting the total income you were credited during the tax year. * You can track this manually or export from the platform, if available. 3. Can You Deduct the Withdrawal Fees? * Not as a personal investment. The IRS does not allow deductions for investment-related fees for personal investments as of the Tax Cuts and Jobs Act (2018–2025).