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taxnoob1
New Member

How do I account for LLC capital account loss on final 1065?

I am filing a final return for an LLC that was closed during tax year 2015.  Initially, three members contributed $5000 each into their capital accounts and the total 15K was spent on administrative type expenses while we explored the potential for the business opportunity.  There has never been any income to report and the LLC holds no assets.

Question:  How do I reflect the capital accounts on the final return?  Should each K1 continue to reflect the members cash that they can claim as a loss individually, or does the loss need to be reflected by resetting the capital accounts to zero on the final 1065?

1 Best answer

Accepted Solutions
Rick19744
Level 12

How do I account for LLC capital account loss on final 1065?

The expenses you incurred are referred to as "start-up" costs (Section 195).  In general, these are capitalized and amortized.  

There is an allowance to permit a partnership to deduct up to $5,000 of start-up costs in the year the partnership begins business. The deduction is reduced for every dollar the total organizational or start-up costs exceed $50,000. Any costs that aren’t immediately deducted are amortized over 15 years.

The partnership is also allowed to deduct any unamortized start-up costs in the year the partnership terminates.  Since your partnership (LLC) is terminated, you would write off these costs.  You would do this on the form 4562 page 2 Part VI.  

When you do this, each member will have this as a deduction on their respective K-1.  They will then take this deduction on their 1040.  Each contributed $5,000 (which provides basis), they now deduct the $5,000 on their return and end up with zero basis.  No capital loss as there is no basis left to deduct.

Make sure the return and each K-1 is marked as final.

*A reminder that posts in a forum such as this do not constitute tax advice.*

View solution in original post

1 Reply
Rick19744
Level 12

How do I account for LLC capital account loss on final 1065?

The expenses you incurred are referred to as "start-up" costs (Section 195).  In general, these are capitalized and amortized.  

There is an allowance to permit a partnership to deduct up to $5,000 of start-up costs in the year the partnership begins business. The deduction is reduced for every dollar the total organizational or start-up costs exceed $50,000. Any costs that aren’t immediately deducted are amortized over 15 years.

The partnership is also allowed to deduct any unamortized start-up costs in the year the partnership terminates.  Since your partnership (LLC) is terminated, you would write off these costs.  You would do this on the form 4562 page 2 Part VI.  

When you do this, each member will have this as a deduction on their respective K-1.  They will then take this deduction on their 1040.  Each contributed $5,000 (which provides basis), they now deduct the $5,000 on their return and end up with zero basis.  No capital loss as there is no basis left to deduct.

Make sure the return and each K-1 is marked as final.

*A reminder that posts in a forum such as this do not constitute tax advice.*
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