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.
*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.
