Receivables & Collections for High Net Worth Individuals in New York City

An installment sale lets you spread the gain on a sale over the years you actually receive the money, rather than recognizing it all at once. Each payment you collect is divided into three parts. A portion is a tax-free return of your basis in the asset, a portion is gain, and a portion is interest. The gain piece keeps its capital character, so for a long-term asset it is taxed federally at up to 23.8 percent once the net investment income tax applies, while the interest piece is taxed as ordinary income at rates up to 37 percent federally. New York taxes both pieces too, with no preferential rate for the gain, so the state and New York City tax of up to roughly 14.8 percent combined falls on the gain and interest alike. The advantage of the installment method is that spreading the gain across years can keep more of it out of the top brackets than a single large recognition would. On a $500,000 payment, the split between basis, gain, and interest determines the tax precisely, and getting it wrong in either direction causes problems. We compute the gross profit ratio at the sale and apply it to each payment so the reporting is correct every year the note pays.

In most cases yes, if you want to avoid an unwelcome tax result. When you lend money, the IRS expects the note to charge interest at least at the applicable federal rate, a minimum rate the government publishes monthly. If you charge less than that, or nothing at all, the rules can impute interest, treating you as if you received interest income you never actually collected and, in a family context, treating the foregone interest as a gift. That means you could owe income tax on phantom interest and use up gift tax exclusion on the difference, all without any cash changing hands. For a high net worth family that makes intra-family loans as part of its planning, this is a real trap, but it is easy to avoid by simply documenting the loan as a genuine note and charging at least the applicable federal rate. The interest you then collect is ordinary income, taxed federally and by New York and the City. We set up the note correctly, pick a rate that satisfies the rules, track the interest as it accrues, and report it properly so the loan stays a loan and does not get recharacterized as a disguised gift.

It can turn what feels like withdrawing your own money into a taxable event. In an S corporation or a partnership, you have a basis in your interest that goes up with income and contributions and down with losses and distributions. As long as your distributions stay within your basis, they are generally tax-free returns of your own capital. But when a distribution exceeds your remaining basis, the excess is treated as gain, usually capital gain, and is taxed even though you may think of it as simply taking out cash you put in or earned. For a high net worth owner pulling sizable distributions from a family entity, this can produce an unexpected tax bill, federally at the capital gains rates plus the 3.8 percent surtax and again at the New York and New York City level. The way to avoid the surprise is to track basis carefully year over year, so you know how much you can distribute before crossing the line, and to time larger distributions for years where basis supports them or where the rate environment is favorable. We keep a running basis schedule for each owner and flag a distribution before it exceeds basis, so the decision is made with the tax consequence known in advance rather than discovered on the return.

Yes. For estate tax purposes your estate includes the value of money owed to you, not just the cash in your accounts. A note receivable from a private loan, the unpaid balance of an installment sale, and trade receivables of a business you own are all assets of the estate at their fair value on the date of death. For a New York family this matters because of the estate tax cliff. New York gives each estate a basic exclusion amount of $7,350,000 for 2026, but once the taxable estate exceeds 105 percent of that figure, about $7,717,500, the entire exclusion is lost and the whole estate is taxed at rates up to 16 percent. A large outstanding note or installment balance can push an estate over that line on its own. That makes the receivables part of the estate planning picture, not just a collection matter. Sometimes the planning response is to collect and spend down or gift the proceeds during life, and sometimes it is to structure the note so its value in the estate is managed. We keep the receivable balances visible in the estate projection so a family near the cliff can see how much of its exposure is tied up in money still owed to it.

You write off a bad debt in the year it actually becomes worthless, and getting the timing right protects the deduction. A business that uses the accrual method and has already reported a receivable as income can deduct it as a bad debt when collection efforts fail and the amount is genuinely uncollectible. The key is documentation. You need to show that you tried to collect, through invoices, reminders, and reasonable follow-up, and that the debt has no realistic prospect of being paid, whether because the customer is insolvent, has disappeared, or has refused beyond any practical recourse. Writing it off too early, before the debt is truly dead, invites the deduction to be denied, while waiting too long can mean missing the right year. For a family business the bad debt deduction reduces taxable income at the business level, which flows through to the owners and lowers their federal, New York, and New York City tax. We keep the receivables aged so a souring account is visible early, document the collection effort as it happens, and time the write-off for the year the debt meets the worthlessness standard, so the deduction is both legitimate and claimed when it should be.