Partnership data entry

[micah22222]

We're using Turbo Tax Business for our father/son partnership and T.T. Deluxe for the partners' 1040's.  This partnership was formed Jan. 1, 2016.  I have a question regarding entering one of the partner's info. into T.T. Deluxe.  Under the Federal Taxes 'Wage & Income' tab as I'm entering info. from our son's K1, one screen asks me, 'Enter Capital Account Information.'  It asks for (1) Beginning capital account, (2) Capital contributed during the year, (3) Current year increase, (4) Withdrawals & distributions, & (5) Ending capital account. 

Our son did not contribute capital at the beginning of the year.  Cash withdrawals/distributions to him were entered in item (4).  

If someone could help me out with items 2, 3, & 5 above, I'd appreciate it very much.  Many thanks!

Also, on this screen I need to check either Tax basis, GAAP, Section 704(b) book, or other.  Any tips on what I check here?  Thanks again!! 

[Rick19744 · Accepted solution]

Your question is confusing as you are mixing TT Deluxe and TT Business in the same question.  I will attempt to address what I believe are the issues:

• Your initial question is regarding information being entered into TT Deluxe (at least that is what is stated).  The information you are asking about should be reflected on the respective K-1.  All of this is determined at the partnership level.  All of this should be detailed on the K-1 line L.
• Your second question should also be addressed on the K-1 in that same line L.

[micah22222]

Thank you for your answer - it's much appreciated.   So I just enter the info. from line L on his k1.  I can do this.  At the partnership level, I picked 'Tax basis' not having a clue what this meant so that came through to the k1 too. I guess my next step is to research what tax basis and the other answers mean.  Any suggestions where to look for this?  Thanks again.

[Rick19744]

Well unfortunately this becomes a complicated area.  Basically they are as follows:

Tax basis are books and records maintained in accordance with the tax laws.
GAAP are books and records maintained in accordance with generally accepted accounting principles.
704(b) are books and records maintained in accordance with the regulations under 1.704-1(b) and are extremely complicated but more in line with economic principles.
Other is exactly that - something different.

[micah22222]

Thanks again!  This brings clarity and narrows it down a bit - appreciate your time and help very much!

[fyrefli]

if the 704(b) books box is checked on my K-1, does that mean I should not choose "all of my investment is at-risk"?

Also, does it mean the amount on the line "ending capital account" is not the number I should use to calculate my basis in the company?

[Rick19744]

In the future it would be best if you began your own post as this is not related to the original question.

In answering your first question - not necessarily.  Section 704(b) attempts to track the economics of the partnership capital and is the cornerstone of the regulations dealing with partnership allocations.  Included in this number could be assets contributed based on FMV and not adjusted tax basis.  There could have been a book-up at some point and that would be reflected in this account as well.

In response to your second question, you need to be tracking your tax basis and adjusting it annually.  Only by knowing your tax basis will you then know whether or not you are at-risk.  Additionally, unless you know your tax basis, you will not be able to determine your gain or loss upon disposition of your interest.

The attached link will provide some general guidance on maintaining your tax basis.

<a rel="nofollow" target="_blank" href="https://www.irs.gov/instructions/i1065sk1/ch01.html">https://www.irs.gov/instructions/i1065sk1/ch01....>

[fyrefli]

sorry about that, in my mind it was connected because of the 704(b) question. Thanks for the answer. I have been researching for days (I did find the link you shared already) and still cannot understand exactly how I should figure out the basis and how much is at risk. I will make a separate post with my situation.