Are partenership distributions taxable?

Forum|Forum|5 years ago
May 17, 2021
3 replies
26 views

2 partners-started company with $150 each. Both took $20000 by year end. K1 line 1 is $13199. Box 19 is showing the $20000 on the k1. WHen entering the k1 on the personal return, it doesn't seem to be showing the difference of the distribution and the line 1 as taxable income. What am I missing?

ProConnect Tax

This topic has been closed for replies.

abctax55

Level 15

Partnership CPE?

No, distributions (generally...) are not taxable.

HumanKind... Be Both

L

LowTaxProIncAuthor

Level 2

Thank you for the feedback. I intend to take more training and retake some after the season ends. On the personal side of things, I thought any income was taxable.

qbteachmt

Level 15

"On the personal side of things, I thought any income was taxable."

The partnership is its own entity. It reports through the K-1.

If the partner takes out more than their ownership share (their basis), you would have to figure out how they managed to do this, and that is when things start to get complicated and might be taxable. Example: The partnership takes a loan, and instead of leaving that in the partnership, each partner takes an amount. They either Borrowed from the partnership (and need to repay it) or they are treating that as theirs to keep, which starts to trigger considerations such as Taxable to them, but wasn't income for the partnership.

Taking their own equity out of the business each tax year doesn't make it income for them or expense for the partnership. That's why I pointed out, you are confusing Cash Flow and Income. These are not synonymous.

Don't yell at us; we're volunteers

qbteachmt

Level 15

"What am I missing?'

Even if they never took any money out of the operation, the successful operation that results in taxable income is "passed through" to them, because that's how a Pass Through Entity functions for tax reporting purposes. That means you might take no money and still have to pay taxes on the partnership's operation.

You are confusing Cash Flow and Income.

"it doesn't seem to be showing the difference of the distribution and the line 1 as taxable income."

Taking the money is not an expense. Taking it or not taking it is not a Business Activity that generates income or expense. Taking money is removing the Asset (money). Not income and not expense.

This doesn't change, whether partnership, sole proprietorship or s corporation. Are you getting mentored or taking continuing ed for tax preparation? Time to do some studying.

Don't yell at us; we're volunteers