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Partnerships are flow-thru entities, meaning the partnership itself does not pay income tax but instead the income and expenses flows through to the partners on a K-1 based on the partners’ interest in the partnership.
As a partner, you will receive a K-1 and be taxed on your share of the net income/loss, regardless of the distributions you have received from the partnership. All income/expenses that flow into the partnership will flow back out to the partners.
The partnership is not required to payout the dividends received from the public stock holding company to the partners. The partnership agreement should state what your responsibilities are as a limited partner and what distributions you will receive. Keep in mind the income that is reported to you on your K-1 will increase your outside basis in the partnership. Your basis is the amount of money contributed, plus/minus profit/loss, plus additional money/property you contribute, less distributions you receive. For example, if your share of the partnership income is $5000, you contributed $100,000 initially to get into the partnership, and you took no distribution, your new basis would be $105,000. If you sold your partnership interest for $110,000, your basis would be $105,000 and you would only pay tax on the gain of $5000.
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Thank you for your help. Couple of quick questions:
1. What if the partnership sends out K-1 later this year ins 2012 - but dividends received in 2011. And I already filed my 1040 for 2011. Do I need to amend 1040 with the late K-1?
2. Or can I use the K-! info and file instead for 2012 tax return? Thank you!
If the partnership is on a calendar year reporting, they have until April 17, 2012 to get you the 2011 K-1. If the partnership filed an extension, they have until Sept 17, 2012 to get the 2011 K-1 to you. If you have already filed your tax return for 2011, you will have to file an amended return once you receive the K-1.