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Infolawyer, Attorney
Category: Business Law
Satisfied Customers: 1780
Experience:  Experienced lawyer
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Does book income as opposed to taxable income include defined

Customer Question

Does "book income" as opposed to "taxable income" include defined contribution payments for the the ownership members (not employees) of an LLC corporation?

Book Income in this instance is used as the basis for the buyout of retiring members- therefore a point of contention between retiring members and active members.
Submitted: 8 years ago.
Category: Business Law
Expert:  Business lawyer replied 8 years ago.
One quick question: Are we referring to the overall "book value" or the "book value" of the shares or membership interest of the LLC?
Customer: replied 8 years ago.
The term in the contract is averaged "book income' for the year prior, the year of, and the year after retirement.
Expert:  Business lawyer replied 8 years ago.
Ok, so, you are looking at the actual income and averaging over three years based on book value. I assume that you are asking whether it is appropriate to list these contributions as an asset or a liability? Or stated another way, are the older members trying to attribute these contributions as income and not liabilities?
Customer: replied 8 years ago.
I am retiring- the question is does "book income" earned during those three years include money paid into a defined contribution plan or is it the same as taxable income that allows it to be deferred.
Expert:  Business lawyer replied 8 years ago.
Book value does not take into account the potential deferments offered under a taxable income calculation. The book income is supposed to be an accurate reflection of the company as it exists, minus real depreciation. Therefore, it is fairly commonly accepted that monies paid into a defined contribution plan are considered income, but the payment out is considered a liability. Thus, it should essentially be a wash. <br /> <br />That being said, I am not an accountant, so I will opt out and see if someone else can help you with this.
Customer: replied 8 years ago.
Thank you