I am closing up my LLC and I need to make sure the balance sheet looks right and whether I will have a long term capital gain or loss.

[jeff5]

I'm wondering if the balance sheet looks right or if I should be making a journal entry to move funds over to a "other expense" account labeled long-term capital gains/losses which would translate onto form 1065 for the final tax return of 2016. As mentioned above, the business ultimately failed and we closed up shop in December.

The balance sheet reads as follows:

Member 1 Equity

    Member Draws ($17,988.37)

    Member Investment $177,618.53

    Member Other  ($159,630.16)

              Total Member Equity = $0

Retained Earnings   $4,575.88

Net Income ($4,575.88)

Total Equity = $0

Total Liabilities and Equity = $0

Do I need to make any additional journal entries in Quickbooks?

[PatriciaV]

Net Loss from an LLC (regardless of character) is reported on the members' personal returns. Members will report a Long Term Gain/Loss based on their own records of the net investment at dissolution. The entity itself had a loss in the final tax period, which should be reflected on the final tax return as you have presented it above. No further adjustments are needed to "zero out" the Net Income / Retained Earnings.

[Rick19744 · Accepted solution]

As noted by TT PatriciaV, any gain or loss on the termination of the LLC is determined at the member level.  Each member should be maintaining a schedule of their basis in their LLC investment.  This begins with the original contribution and is adjusted annually for the applicable lines on their K-1.

Once your basis is adjusted for the applicable lines on the final K-1 and you adjust the basis for the final liquidating distribution, you can then determine if you have a gain or loss.

If you still have remaining basis after adjustments noted above, then you have a capital loss.

If the final liquidating distribution causes your basis to go "negative", then you have a capital gain to the extent of this negative; essentially the gain gets the basis back to zero.

See the link for some discussion on basis.  Hopefully you did not use liabilities to take losses as this will complicate the matter and that discussion would be beyond the forum discussion.

https://www.irs.gov/instructions/i1065sk1/ch01.html