Where do I report an owner draw on llc 1065 k-1? 2 partners who also get a salary. is the draw subject to social security and medical taxes as well?

[Vanessa]

An owner-draw is not reported on the K-1. The owner draws will simply decrease each individual capital account.  

When you have an LLC, all income flows through to the owners of the LLC on the K-1. The 1065 is simply an informational return. This means whether or not you take a draw you will be taxed on your share of the income the LLC receives.  All of the income reported on the K-1 will be reported on the individual owners 1040 and will be subject to Social Security and Medicare taxes.  The amount taxed has nothing to do with the amount actually withdrawn. 

For example, if the LLC has $100,000 in profits with 2 owners and each owning 50%, then each K-1 will report the owners share of $50,000.  Each owner will report that $50,000 on their individual 1040.  Even if owner A takes $45,000 out and owner B takes no actual distributions they will still BOTH report $50,000 on their 1040.

[TRAINWRECK1]

Sorry to say your post is not accurate. Draws (aka distributions) are indeed reported on the K-1. They are reported in box 19 Distributions using a code of A (Cash and Marketable Securities).

[MattKing]

Thanks.  I needed that!!

[Critter-3]

Partners don't take a "paycheck or wages" and don't get issued W-2 forms  however they can have Guaranteed Payments.  Line 10 of the form 1065 ...  https://www.irs.gov/pub/irs-pdf/f1065.pdf

[helen190]

Three opposing answers, one right after the other.  

This whole owner's draw thing is an absolute trainwreck, especially this year.  Thousands? Hundreds of thousands? of small business owners paid themselves "owner distributions?" "owner draws?" last year using EIDL loans.  There is ZERO information on what to do with this info on your tax returns. This is a population of people who are all trying to do their taxes themselves on turbotax to save money.

Just like on this thread, the answers to how to handle this on your taxes are 100% contradictory, and this is info allegedly coming from accountants.  

"I'm an accountant, and you cannot pay federal back taxes with your EIDL money." "I'm an accountant, and you can absolutely pay federal back taxes with your EIDL."  (I happen to know which of those sentences are accurate, but that's an easy one.)

There are literally HUNDREDS of these types of contradictory comments sometimes following a SINGLE article talking about how to handle an owner's draw on your taxes (or paying yourself via your EIDL loan more broadly.)

[parvitstax]

@helen190 You didn't want to help with the correct answer?

[Critter-3]

Ok ... why don't you look at the form 1065 instructions ... K-1 box 19 ... cash distributions  ....  https://www.irs.gov/pub/irs-pdf/i1065sk1.pdf

Of course ... what is distributed to the partners may not be what they are actually  taxed on thru the K-1 form.  If you do not understand pass thru entities then using a professional the first year is wise for the education alone as well as getting your books in order. 

[parvitstax]

Great advice. 

Example:

2 partners 50% each

2022 profit $50k (end of year balance $200k)

2021 end of year balance +$150k (did not withdraw funds)

Partners taxed on $50k for 2022 but can label a Distribution on the K-1 box 19 with code A for $100k each ($200k end of year profit). 

@Critter-3 has the best answer with a link explaining Line 19 on the K-1

[cd20191]

So in this situation, if each partner draws 45k and the profits are only 40k- only 20k per partner will be reported as taxable income? 

[Rick19744]

Partnership tax gets complicated very quickly.  A few comments to hopefully bring some closure to some questions:

• Individuals do not always use the same terminology when asking questions.
• A draw could be just a distribution.
  • Distributions are reported on the Sch K-1(currently line 19)
  • Distributions may or may not be taxable.  This depends on the member's tax basis.  As long as a member's tax basis is positive (or does not go below zero), there are no tax implications to the distribution.
  • As a result, maintaining one's tax basis in an LLC is critical; this determines the allowable loss if applicable, determines taxability of distributions, and then determines overall gain or loss when the investment in the LLC is sold, liquidated, etc.
• Distributions are not the same as ordinary income reported on the other applicable lines of the K-1.
• A draw, could also be interpreted as a guaranteed payment to a member, which is reported on the K-1 line 4.  Guaranteed payments are "wages" paid out to a member regardless of the bottom line reported by the LLC.  These are in essence equivalent to a salary, except they are not reported on a W-2 AND there are no employer withholdings.  The member is responsible for remitting federal income tax and self-employment tax on the guaranteed payments.