Estimating 2017 1065 K-1

[flmken]

Our LLC just sold some property which will require our partners to pay estimated taxes. Can we use our 2016 Turbo Tax Business to run estimated 2017 1065 K-1s for our partners? If not, what is your recommendation?  Thank you!

[Carl]

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[Rick19744 · Accepted solution]

This can be handled by using a simple excel model.  This is done regularly by pass-through entities.  

• Just determine what you estimate the net income to be that will pass through to the members
• Set-up an excel model with the members and their applicable ownership percentage
• Now determine what marginal tax rate to use; both federal and state.  This rate is tied to the income of the LLC and not what each member's marginal tax rate may be individually.  See bullet 5.
• Now multiply each member's applicable pass-through income by the marginal tax rate you determined in the step above.  This should approximate the estimated tax applicable to the earnings of the LLC that will pass-through to the members.  This also provides you with the cash distribution that should be distributed to each member to cover their respective tax liability.
• Keep in mind that the LLC is only responsible for covering the tax applicable to the LLC earnings passed through to the members.  It does not cover any other personal income items.  The taxes applicable to those items are the responsibility of each member.

[Rick19744]

Noted above is the determination of the marginal tax rate.  Keep in mind that it is possible that members do not all have the same marginal tax rate.  When this occurs, the LLC will typically use the highest marginal rate of a member as the driver for the tax estimate and distribution.  This results in the member with the highest marginal rate to use all of the distribution for taxes and a member with a lower marginal rate to have some excess; but that's the way it is.