Re-investing profits

[Stevehere]

We have a small LLC company buying and selling land.
We made a small profit in 2021 that was re-invested into more land
We now have our K1 and it shows my portion of that profit.
I did not remove any money (None of us did) from the company because of the re-investment.
if I pay taxes on the K1 figure but that value is reinvested, how do I allow for it in 2022 returns as I will be paying tax on tax already paid 
I hope that makes sense

[tagteam · Accepted solution]

You will be liable for any federal income tax on your share of the LLC's net profits (as reported to you on your K-1) regardless of whether or not the net profit is re-invested (or not distributed).

Future distributions of that net profit will be tax-free to you provided you have sufficient basis in the LLC.

[Stevehere]

Thank you and I did expect that to be the case but how do I show that?

For example, if I earned $20000 in 2021 and paid tax on that but that re-investment went towards a $50000 profit in 2022 how do I separate the two, so I only pay on $30000?

[tagteam]

The two tax years are entirely separate in terms of any net profit realized by the LLC.

In other words, if your LLC has a net profit of $50,000 in 2022, then you would be liable for your share of that $50,000 net profit (again, as reported to you on your K-1). You cannot reduce the 2022 net profit of $50,000 by the net profit reported in 2021.

[Stevehere]

I am probably looking at this the wrong way 
I assumed that making $20000 and paying tax on that would mean the first $20000 of the second year return has already been taxed
Otherwise why would I reinvest if I have to pay tax twice?

[tagteam]

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@Stevehere wrote:

Otherwise why would I reinvest if I have to pay tax twice?

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The decision to reinvest is your choice, but you do not pay tax twice on your share of the LLC's net profit.

You pay tax once on your share of the 2021 net profit of $20,000 and once on the 2022 (hypothetical) net profit of $50,000. 

Note that the profit will increase your basis in the LLC to the extent it is not distributed to you but, rather, reinvested in the company.

[Stevehere]

Okay, so it is the net profit I report and not the whole, 
I think I understand

Thank you

[jtax]

[Edited to remove not quite right/confusing reply]

[tagteam]

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@jtax wrote:

if instead of the LLC ending in 2023, it had a banner year and distributed to you cash profits of $175k, you would report income of only $25k because your adjusted basis of $150k would "soak up" the first $150k....

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Confounding statement and you probably should not have posted since the question had already been answered.

If the LLC had a "banner year" with a net profit (ordinary income) of $175k, the share that is reported would be based upon $175k; the distribution is irrelevant except for the basis computation.

[jtax]

@tagteam point taken. I removed the post. 

I didn't the basis issue was clear and thought that warranted another post. But I messed it up and made it worse. Thanks for pointing that out.