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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 10108
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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ATTORNEY ONLY. NOT CPA OR OTHER TYPE ATTORNEY. I began

Customer Question

FOR TAX ATTORNEY ONLY. NOT CPA OR OTHER TYPE ATTORNEY.
I began depositing my draws from my 50-50 partnership LLC into my sole proprietor LLC's bank instead of to my personal bank account to keep my business banking together and fr convenience.
When I file taxes, since I am individually the partner in the LLC that disburses the draws to me and my SP LLC is not, do I still report the draws under my name (be they classified as guaranteed payments or ordinary income) rather than my SP LLC's?
Or should I do an assignment of these monies to my SP LLC and include these under its name? If this is the better way, do I need my partners permission to do the assignment since I am not assigning my member interest in the partner LLC, only monies I receive.
I want to do the appropriate thing.
Submitted: 1 year ago.
Category: Tax
Expert:  Lane replied 1 year ago.

Hi,

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In LLC's, partnerships, and sole proprietorships owners live off of their profits.

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The Operating agreement is the way partners formalize/codify how profits, losses, capital gains, capital losses, management right, etc. are allocated.

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If three's no operating agreement then all of those issues default to state law.

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And in all 50 states, the default rule on sharing of profits is that is is distributed (allocated is a better word, because you do NOT have to physically distribute) and taxed base on ownership interest (percentage owned).

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So what you are calling draws is not a taxable event. The tax halpened when the profit was made.

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So, there's no need to do guaranteed payments UNLESS you both agree that one of you is to receive money REGARDLESS of profitability.

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In this case .. as you pull out your profit, all you are doing (regardless of where you deposit this money) is using your profits.

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Now, if you pull more that 1/2 of the profits that have been left in LLC accounts to PULL ... then you are essentially taking either (your original contributions into the LLC, selling assets, borrowing money OR taking our partner's share of profits).

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But there's no need to do any assignment, you're just using your profit as all self employed's do. Remember, one of the attributes of a pass-through is that profits are taxed (income minus expenses - profit) whether you use them or not. ... Here you are deciding to use them - pull the dollars ... but again that's not a taxable event. Profits re taxed wher you pull hem or not in a passthrough

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Hope this helps

..

Lane'

..

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If this HAS helped, and you If you don't have additional questions on this, I'd appreciate a positive rating (by clicking the stars on your screen) ... that's the only way I'll be credited with a portion of what you've paid JustAnswer.
...

Lane

Customer: replied 1 year ago.
Thanks Lane but What I really need to know is if I need to legitimize or justify that I am depositing the monies that go to me from the partnership into my sole proprietor LLC bank account instead of into my personal bank account.
So my question. Is not about what is or is not profit or taxable, it is about whether for either my partner or any agency if I need to cover my bases as to why I am depositing funds coming to me personally from the partner LLC into the business account. I want to avoid a co-mingling issue as well.
Expert:  Lane replied 1 year ago.

No not at all. (Actually what you do with your share of profits is no one's business - That's a privacy issue)

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And again, that you TAKE the amounts you do should be in the operating agreement ... or at least your ability to take them. (something to the effect of ... " Partners will from time to time draw on accumulated profits and understand the need to account for their own basis."

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And, as an aside, from a bookkeeping perspective, what you ARE doing is making capital contributions to your SP LLC (Increasing your basis in it)

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Make sense?

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