How should amounts be displayed on K-1s for the following scenario?
2-member LLC, both members actively engaged in the business. Initial filing in 2020.
In 2020 there was not enough income to cover expenses. Member A covered the ($10,000) net expenses out of own pocket. Should the K-1 for Member A list ($10,000) in both Box 1 and Box 14? Is that all?
You'll need to sign in or create an account to connect with an expert.
Follow-up responses:
I am going to page @Rick19744 for this.
However, it appears as if there would be a contribution to capital and then a special allocation to Member A.
Some initial thoughts:
Member A merely covered the expense until 2021 income could cover it. So I suppose it's a "capital contribution." No change in PIP or ownership (it was not considered significant; Member B could just as well have paid the expense).
The LLC checks "Yes" on Schedule B Question 4 so my understanding is that capital accounts don't need to be listed on K-1. So can the LLC just list 0 across the board on K-1s Box III, and Member A can deduct that as a loss on his Schedule C?
Follow-up responses:
I see another issue. it's a question of whether member B has $5,000 of basis to take his share of the loss. if one argues that A gifted 50% of the $10K (as a capital contribution) to B. then B has no obligation to repay A. if he does, then one can argue no gift was made and B has no real basis. this is a situation that should be discussed with a tax pro. Certainly, others can have different viewpoints.
@Mike9241 they should be good to go following the provided guidance.
Still have questions?
Questions are answered within a few hours on average.
Post a Question*Must create login to post
Ask questions and learn more about your taxes and finances.
superbean2008
Level 2
TomDx
Level 2
nativecraftsmanllc
New Member
mjlresources
New Member
profgg
New Member