Can I show december profit draw in my 2022 taxes instead of 2021?

Forum|Forum|4 years ago
February 27, 2022
2 replies
30 views

I have a partnership LLC which got paid in 2021 as a 1099 for some work. They were late in sending me 1099, but my partner and I withdrew profits from our business account as per our calculation on Jan 1st week of 2022. Now, it seems that the 1099 does not include the payments that were supposed to be for last two week of december as they were paid on Jan 7th. They will include it in 2022 1099. So my questions is, is it okay to show profits on 1065 that are less than the total that we have withdrawn from the account. They will be all balanced next year, when we show 2022 amounts.

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ZoltanB45

Level 9

A partnership is a pass thru entity and a "draw" is an equity or balance sheet item. It does not affect the profit and loss of the business.

seftestAuthor

Level 2

So when showing income on personal return, can I defer the december draw to 2022 instead?

Mike9241

Level 15

draws never show up on a personal return unless they're in excess of your tax basis. if they do, they're capital gain for the year of withdrawal.

Mike9241

Rick19744

Level 13

Here are some comments related to your questions:

You don't mention what the LLC method of accounting is. However, if accrual you would have to recognize the income. If cash, if you received the cash you would also need to recognize the income. Just because the 1099 wasn't received until 2022 has no bearing on the income recognition.
Your payments received on Jan 7th will be recognized as noted in item 1.
It appears you are unclear on how the LLC works.
1. As has been noted, the LLC is a passthrough entity and the members are taxed on the profits, losses, gains, etc. as reflected on the 1065
2. Your distribution will be reflected in the year you actually distributed out the cash
3. The impact of the distribution will depend on your tax basis. Hopefully you are maintaining this as this is extremely important. Without knowing or understanding how to maintain your tax basis, you are not able to correctly prepare your 1040.

Not sure how long you have operated the multi-member LLC, but these entities are complex regardless of the size.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

seftestAuthor

Level 2

Ok. It's a new LLC formed in 2021 and Im doing all accounting myself using cash method.

So after going through everything, it seems the issue is that we took out profit draws a bit early in December, which leaves the balance sheet at the end of the year as negative, as the expense in those last two weeks was more than expected (which got resolved on its own when Jan 7th payment came in as the payment was late). So in this case, lets say that the llc shows a net profit of $10000, where as distribution was for $12000 because at the time of distribution the estimated profit was $13000, we estimated expenses/payroll by eoy to be a lot less than what it actually was. So what would be the best way to handle this scenario both in case of LLC 1065 and personal 1040?