Accounts needed for investment in another company

What is the entity type of the owning company?

The holding company is a LLC with 2 members. 

Bump....anybody have any help they can give?  I just want to know how to keep my capital accounts correct for investments in OTHER companies.  Not my company.

Bump....I just want to know how to keep my capital accounts correct (wrt to received K-1's) for investments in OTHER companies (not my company).

Bump....I basically want to know how to keep my capital account (as reported to me in a K-1) in a company I've invested in balanced correctly.  This is not my equity in my company, it's for a company I've invested in.

It depends

If your company is  an owner of the second company, then you have an asset account in your company equal to total investments, and in the other company you have equity accounts.  your share of net income reported on the second company K-1 increases your asset investment account.  Draws on equity in the second company would reduce your asset investment account.

If the second company is taxed as an s-corp, then your company can not hold shares of stock in that s-corporation.  Then your "investment" would be treated by the second company as a liability and you would receive payments, principal and interest payments.

Given both the holding and subsidiary are LLCs, the net profit of the subsidiary would flow through to your tax return.  So in the books of the holding co. it's just in an out, I would think

Rustler,

I believe the second company is indeed an "Other Asset" on my balance sheet.  Other other company is not an S-Corp and I've been accounting for my asset as described by you in your first paragraph.

However, when I receive a K-1, sometimes the change in capital account is NOT the same as my share of net earnings.  That's because the capital account change takes into account some expenses that are not tax deductible.  This is causing an issue for me when I post retained earnings. Right now I offset retained earnings as "Other Income".  But to correctly balance the capital account (ie - the Other Asset account), I need to account for these non-tax deductible expenses.

Any ideas?

Since you get a K-1 and the other company is not a corporation, it must be a partnership.

In your books I would offset the k-1 partnership share of net profits by the amount of non deductible expenses when recording the increase to the asset investment

@ejhuzy

Bumps don't help; this is not Live Chat, so every 3 minutes doesn't get the attention of peer users also running our own businesses while trying to Help, here.

You should work with your own CPA; you have Tax question for the related entities. This is a QB user forum. You know this is Pass through, so you need to ask them about handling Gross, Net, and also the nondeductible and nonreportable activities from these other entities in which your own LLC is invested as a partner.

Rustler,

Thank you for the response.  You have reached the heart of my question.  I am indeed offsetting my share of net profits by the non-deductible expenses.  I guess my question is what kind of account should that offset go to?  Right now I'm using a "Other Expense" account.  And that works, except that it shows up on my P&L and incorrectly reduces my profits.  I can "mentally" ignore that offset, but I was hoping there was a way to tell QB to "not include that account" in my P&L.

Thank you.

qbteachmt,

Sorry about the multiple bump messages.  That was me thinking my posts weren't working.  I didn't realize there was a delay in the post showing up until it was accepted.  I'll refrain from that in the future.

An LLC gets a K-1 also; for tax purposes, based on the election when the company was registered with the IRS. I have multiple LLC's, each gets a K-1 at year end which is used for my personal taxes.

Hey sorry to bother but I had a quick question related to holding companies. I know this isn’t your question but it popped up when I was searching. It seems you have a holding company that does exactly what I’m trying to do. I know the general area of classification, but what NAICS does yours fall under? The concept here is investing for ownerships of some local business for ownership percentage, receiving distributions sort of like you mentioned. I accidentally classified it as VC and cannot get a business account based on bank policy. It was classified incorrectly and it supposed to be a holding company that functions much like your explanation. Aside from what code, did you have trouble with opening an account if classified as as a holding company? Dont understand why it would be troublesome… I didn’t know if we could DM through QB so this is an attempt to get info on an unrelated thread. Apologies, but any help would be greatly appreciated.  

NAICS: 551112