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Ed Johnson
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Can I claim a loss on K1, that is more than the amount I have

Customer Question

Can I claim a loss on K1, that is more than the amount I have contributed to the business?
Submitted: 5 years ago.
Category: Tax
Expert:  Ed Johnson replied 5 years ago.

Dear Jitendra,

 

Is your business a partnership, an LLC with multipel owners, or an S-Corp?

 

Which line of the K-1 are you showing the loss on?

Customer: replied 5 years ago.
Its an LLC
Expert:  Ed Johnson replied 5 years ago.

And if it is an LLC, and you are talking about a K-1, then I assume you are partners.

 

There are different kinds of losses with the business. operating losses and capital losses for example.

 

Normally how much you have invested is not an issue for losses, during the operation of the business,but come in to play when the business is disposed of, or when one of the partners leave the business.

 

Because of all of that, I need to know what line of the K-1 are you showing a loss on, and are you disposing of the business?

Customer: replied 5 years ago.
No we are not disposing the business. Its an operating loss. The funds have come from investors and the partners. We would show the share of the loss on 1. I wanted to know if can show the whole amt on 14A. So suppose we have an income of 25k, expenses of 100k, including tax on income and loss of 75 k. If there are three partners can we claim 25k as loss in 14A, or will it restricted to say 5k that the partners have contributed.
Expert:  Ed Johnson replied 5 years ago.

Dear jitendra,

 

The investment money is your equity in the business and your cost basis. You do not show investment money as part of receipts. So what you invested is not factored into the formula for operating losses.

 

If you do the form 1065 correctly, the numbers flow to the K1 appropriately. The K-1 should show each partners EQUAL share of operating loss, expenses, etc, unless you have a partner ship agreement based no investment percentage.

 

IF your partnership agreement shows you should be dividing in proportion of your contributions or investments, then that division of net operating losses and expenses can be shown.

 

I am using this form: http://www.irs.gov/pub/irs-pdf/f1065sk1.pdf If you are using a different form let me know:

 

The investment portion goes on this form in section L.

 

http://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

 

 

 

 

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Ed Johnson
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GPHR Cert; U.S. Treasury Tax Advocacy Panel appointee