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How do we treat drawings by LLC members, report on sch-k and

do we need to give...
How do we treat drawings by LLC members, report on sch-k and do we need to give them a 1099
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Answered in 21 minutes by:
8/2/2012
jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
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Greetings,

 

Partners do not get a 1099, just the information as reported to them on Schedule K-1.

 

Like most items that appear on the Schedule K of Form 1065, there is an applicable line on the K-1 for payments to the partners.

 

There are two types of draws by partners and the operating agreement (as well as decisions of the managing partner(s) that year) will determine how much of each type each partner had during the calendar year.

 

Guaranteed payments, which are essentially payment for services performed by the partner for the partnership, are listed on line 4 of Schedule K and are a deductible expense (similar to a payment to a contractor) that reduces the partnership ordinary business income that will be allocated.

On the partner's Schedule K-1 those amounts are on line 4 in Part III and on the individual return will be subject to self-employment tax.

 

Return of capital is not a deduction for the partnership but reduces the balance sheet amount of capital at year end Line 21 Schedule L. This is simply a return of the investment of that partner and is not taxable until the total returned exceeds the partner's basis in the partnership interest at which point it is a capital gain reported by the partner.

On Schedule K those amounts are on line 19a for the total paid out by the partnership and the partner's share of those withdrawals is in the section L Partner's capital account analysis as Withdrawals & distributions (a negative number).

 

Sorry I can not tell you how much of either the payments to each partner may have been as that depends on the agreement and facts during the year of operation of the partnership.

Since you mention a 1099 that seems to indicate that the payment was for services and so is likely treated as a guaranteed payment.

 

As always, please ask if you need clarification or more discussion.

Thank you.

 

 

 

 

 

 

 

 

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jgordosea
jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3,161
Experience: I've prepared all types of taxes since 1987.
Verified
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Customer reply replied 5 years ago

I am reviewing the answer, just a quick question regarding online studies for EA exam, what is your recommendation on that.


And is there any other option for a non profit to be tax exempt other than filing 501(c) application.

Hello again,

 

I will have to admit that I plan to apply for approval as a provider of continuing education, and have worked with some firms. Because of that conflict of interest I will recuse and not answer for a recommendation.

 

An organization can be tax exempt being a church (or an integral part of a church) and not have to apply to be tax exempt (if I understand the question correctly). But, discussion of that would need a new question under site protocol.

 

Let me know if you desire more discussion on the partner's draw question.

Thank you.

 

 

 

 

 

 

 

Please remember when you are asked to rate my service that you are rating me, personally, for the service and information that I have provided. You are not rating this website or the situation itself. Negative rating affect me greatly; so if you feel the need to rate one of the first 2 negatives please click reply to expert or continue the conversation to let me know what more I can do to help or to explain. A positive rating is the only way that I receive credit for my time and effort to assist you

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