How to Show Partnership/LLC Losses Correctly

[StupidEngineer]

I have a 2 person partnership that was started late last year.

My partner paid out of his checking account 2076$ for business expenses.

I paid 1465$.

$600 of this went into a business checking and savings. The remainder paid for business expenses

The business made $4500 for the year.

We had $3542 in deductions (fees, insurance, software, etc. It is a coincidence that its the same number as our investment).

Our business checking + savings had $903 at the end of year.

I paid myself $2,779.

My partner paid himself $818

$313 went into business checking.

When I put all this into turbotax, the balance sheet does. not. add. up. I'm clearly doing something fundamentally wrong but I can not for the life of me figure it out. I need to make sure that my partner has a loss on his K-1 while I made money.

I tried showing the 3597$ paid to us in the deductions section. Later I'd have we gave a loan of 3541 to the business. Didn't work.

Tried having my partner paid a negative number (his investment minus his payment), myself a positive number, still didn't work.

I'm at a loss. How are you supposed to account for this loss so it shows up correctly??

[ThomasM125]

I assume you are filing a partnership return form 1065. If your sales are less than $250,000 and assets are under $1,000,000, then you probably don't need to file a balance sheet with the return. Just check the "yes" box on line 4(d) in schedule B of form 1065.

The way the income distribution works with a partnership, you enter all of the business income and deduct all of the business expenses to arrive at your net income. You then multiply the net income by each partner's percentage of profits, and that is that partner's income or loss.

The money you contribute or take out of the partnership has little to do with your taxable income or deductible loss.

[Rick19744]

Some comments here:

• While a balance sheet is technically not required based on your activity threshold, I always recommend one be maintained.  This is a good check and balance for activity.
• The balance sheet within TT Business is not something that is computed.  This component needs to be manually input.
• I recommend you purchase QuickBooks to maintain your books and records.
• It is clear based on the limited facts you need some professional tax advice on how to get started with your partnership.  Large or small, partnership tax is complicated.
• Also based on the limited facts, it appears you need professional tax advice in how partnership allocations work.  In general, it does not make sense that one partner should be allocated a loss and another income.  This is Partnership Tax 101 red flag.  The general rule is allocations are based on the partner's interest in the partnership (PIP rule).  Anything outside of this allocation needs to be supported by the extremely complex substantial economic effect regulations.  These regulations are not for the feint of heart.
• Bottom line, please consult with a tax professional for your initial year.