Partner Distributions

[danielle-51]

We are a small family business, an LLC, taxed as a partnership.

Each partner paid their taxes on their "profit" from 2022 on their individual 2022 tax returns.

This was the first year we actually paid out the "distributions".

So, knowing the taxes are already paid, is it something you are still required to report on this year's tax return, since this is the year it was actually paid out?

And, it is not considered a business expense when you pay out the distributions, is it? 

[Anonymous_]

I'm going to page Champ @Rick19744 again, but partners are issued K-1s and have tax liability based upon their share of ordinary income (reported on the K-1s) regardless of whether there are any distributions.

You might want to seek guidance from a local tax professional.

[Rick19744]

Each member in the LLC taxed as a partnership needs to be tracking their tax basis (also known as outside basis).  This begins with the initial capital contribution and is updated each year for the applicable lines on the K-1.

Unless you know your tax basis, you are not able to determine the taxability of any distribution.

You don't indicate when the LLC started.

If the distributions were paid out in 2023, then those amounts will be reported on your respective K-1.

You will need to update your tax basis for the applicable lines on your 2023 K-1.

As long as your tax basis remains positive, you will not have any tax impact as a result of the distributions.