In the real world, the LLC (most LLC's) would determine an estimated tax rate and make a distribution based on that.
So, if the LLC passed out $500 in K-1 income or gain and determined that they would use a 40% federal and state tax rate, they would then distribute out $200 to cover the tax impact. The $200 would be reported on line 19A.
Make sure you understand how your tax basis works here as this will be extremely important when you exit this investment. Better to get this done now instead of many additional years down the road.
As a real simple example of the impact here; initial investment $100, income over the years $400 and no distributions. Your tax basis is now $500 and not the $100. This makes a significant impact when sold.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
