I'm a new resident to NH. I'm a partner in an LLC that has made losses in 11 of the past 13 years. There is an accumulated loss on the balance sheet. The LLC K-1had a box 1 income of $27,000 in 2023 and reported Interest and Dividends of $2000. The LLC also made is first distribution in 2023 of $45,000. It is an operating business.
I understand I must report the $45,000 distribution on line 2.
I also think a big chunk of the distribution can be designated not taxable on line 4. There are two not taxable "Reason Codes" that I believe pertain to my situation.
Reason Code 10: Distributive share of the entity's interest or dividend income indicated on Schedule K-1 and
included in the partner, beneficiary or shareholders federal income tax return.
Since the dividends and income of $2000 is included on my Fed Filing in Sched B and included in the amount of dividends and income reported in Line 1 of the NH DP-10 it seems they are giving the opportunity to avoid counting this income twice. Correct?
Reason Code 11: Return of capital.
Chapter Rev 900 states in Rev 903.05: Deemed Dividends. With the exception of distributions in liquidation, the following transactions between an organization and its shareholders or interest-holders shall be considered a dividend:
(a) All property transferred from an organization to a shareholder or interest-holder with respect to the shareholder's or interest-holder's ownership interest from the accumulated profits of the organization;
Rev 903.06 Sequence of Distributions. All actual distributions shall be presumed to be sequentially made from: (a) The current year profit of the organization; (b) The organization’s accumulated profits; and (c) The capital of the organization.
In my case, of the $45,000, the distribution first comes from (a) current year profit of $27,000, (b) there are no accumulated earnings, so (c) the balance, $18,000 is a Return of Capital which is not taxable as per Chapt 77 Income and Taxes, section 77.7.
Or, since there are no accumulated earnings is the whole $45,000 not taxable as a Return of Capital?
Right now I'm apt to reduce the $45,000 by Reason 10: $2000 and Reason 11: $18,000 leaving a taxable amount of $25,000.
Any thoughts? Am I interpreting this correctly. BTW, the NH State software from TurboTax does not seem suited to nuances like mine. It will not allow me to provide "reasons for not-taxable" on Line 4 for the LLC's it only references the Sched B Int and Divs.
