LLC partnership distribution

[abholcomb]

I added a partner to my LLC mid-year. Since then, we have taken differing amounts of cash. Do both partners in an LLC need to take out same amount by end of year, or can one partner choose to leave the money in to grow the business?

[MaryK4 · Accepted solution]

It depends on the terms of the partnership agreement.  Partnership distributions include the following.

• A withdrawal by a partner in anticipation of the current year's earnings.

• A distribution of the current year's or prior years' earnings not needed for working capital.

• A complete or partial liquidation of a partner's interest.

• A distribution to all partners in a complete liquidation of the partnership.

A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year.

A partner's adjusted basis in his or her partnership interest is decreased (but not below zero) by the money and adjusted basis of property distributed to the partner.   See Publication 541 (03/2021), Partnerships for the tax issues.

[abholcomb]

Thank you again for another great answer Mary K. IRS Publication 541 was very helpful and it led me to 551. Between the two, I should have all the info I will need. Appreciate your help.