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Level 2
posted Jan 25, 2021 5:25:29 AM

Left small business during 2020, should I be receiving a Schedule K-1?

My business partner and I created a small business back in 2018. He was a 51% owner and I was a 49% owner. I decided to leave the business in 2020. However, we never did any sort of formal letter saying I was giving up my 49% of the company. Nor did we do any sort of monetary transfer of funds. Also, we decided to participate in the SBA loan and received funds, my name was on this loan. I believe we only received ~$2k.

 

I want to make a clean break from the company, not sure the steps to do this, and if I should be receiving a Schedule K-1?

 

Something to note, I did the business taxes in prior years using TurboTax business. I assume they will be doing it in a similar manner however without me involved. 

 

Any help would be great, thanks!

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2 Replies
Level 13
Jan 25, 2021 6:14:16 AM

There are a number of issues here:

  • Unfortunately, regardless of the size of a business, when you have partners the tax implications and reporting are the same....complicated.
  • You indicate that you did the return in TT in prior years and then stated "I assume they will be doing it in a similar manner....".  TT doesn't prepare the return, you do.  TT only provides an output of information based on what you have provided.
  • While the facts don't provide this information, I assume you prepared a partnership return in the past?  Form 1065 assuming you followed the default entity choice.
  • If that is the case, someone will need to complete a final Form 1065.
  • There are a number of issues that need to be addressed
    • Depending on when you left the business entity, the partnership return may be late
    • If it is late, you will have penalties based on the number of partners and the number of months that the return is past due
    • Regardless of whether you received any final distribution, there could be some depreciation recapture for you
    • Have you maintained a tax basis schedule in order to determine your overall gain or loss
  • Since the business took out a PPP there may be some confusing issues with the SBA.

As you can see, this may not be something you are able to handle without some professional advice.  I recommend you consult with a tax professional quickly before they get too overwhelmed in their tax season.

Level 2
Jan 25, 2021 6:35:51 AM

Hey thank you for the reply. 

 

I should have been more clear in my initial post. 

 

We produced the Form 1065 each year using either TaxAct (2018) or TT (2019). These generated the Schedule K-1s we needed for each of us for each of those years. 

 

The business is still up and running. I decided to leave the partnership as I no longer had the time to continue my full time job and this side business.