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Distribution of income to partners

A mangement  LLC company is owned by to LLCs. The management company gets a commission income of 100,000$. I register this transaction as an income. The management company distribute the income to the LLCs partners (50/50). How do I register the deposit to the LLC partner? If I register as an income again I am afraid that when I give the books to the accountant I will pay double taxes. Any suggestion? Thank you

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Best answer 12-10-2018

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Established Community Backer ***

LLC is not important, how the LLC is taxed for federal in...

LLC is not important, how the LLC is taxed for federal income is the key.  If the LLC is taxed as a partnership (form 1065) then you book income the company makes during the fiscal year

At the end of the year the company has made a net profit (hopefully), on the first day of the new fiscal year QB moves that Net profit to the retained earnings account.

Then you do a journal entry to distribute net profit to the partners

debit RE for the full amount in the account
credit partner 1 equity for 50%
credit partner 2 equity for 50%

A partnership does not pay income taxes, the partners receive a form K-1 which is created as part of the form 1065. That K-1 provides each partner with the amounts of income and expenses for the business allocated to the partner and he uses that information to fill out his personal income tax return.

Income during the fiscal year is not "deposited" to the partners

If the partners need money from the company then the company writes them a check and uses partner equity drawing as the expense for the check.

I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

When you clear (roll up) RE to equity, you do journal entries to roll up drawing and investment too

IF the LLC is taxed as a c- or s-corp, none of the above applies

16 Comments
Established Community Backer ***

LLC is not important, how the LLC is taxed for federal in...

LLC is not important, how the LLC is taxed for federal income is the key.  If the LLC is taxed as a partnership (form 1065) then you book income the company makes during the fiscal year

At the end of the year the company has made a net profit (hopefully), on the first day of the new fiscal year QB moves that Net profit to the retained earnings account.

Then you do a journal entry to distribute net profit to the partners

debit RE for the full amount in the account
credit partner 1 equity for 50%
credit partner 2 equity for 50%

A partnership does not pay income taxes, the partners receive a form K-1 which is created as part of the form 1065. That K-1 provides each partner with the amounts of income and expenses for the business allocated to the partner and he uses that information to fill out his personal income tax return.

Income during the fiscal year is not "deposited" to the partners

If the partners need money from the company then the company writes them a check and uses partner equity drawing as the expense for the check.

I recommend you have the following for owner/partner equity accounts  (one set for each partner if a partnership)

[name] Equity
>> Equity
>> Equity Drawing - you record value you take from the business here
>> Equity Investment - record value you put into the business here

When you clear (roll up) RE to equity, you do journal entries to roll up drawing and investment too

IF the LLC is taxed as a c- or s-corp, none of the above applies

Established Community Backer ***

"The management company distribute the income to the LLCs...

"The management company distribute the income to the LLCs partners (50/50). How do I register the deposit to the LLC partner?"

I think you are asking about a Subsidiary, or Wholly-owned or Sub-entity relationship. In that case, the initial entity earned Income, the Payout is Distribution or Draw from Equity, and the Deposit to the other LLC is an Equity deposit.

The other LLC will get a full report from tax preparation for income and expense. Right now, all you have is some Banking.

You should always review this with your CPA, of course. We are doing our best to understand what you asked, without access to any further details.

Established Member

Re: Tax line assignment for partner distributions

My accounts are set up as you suggest in quickbooks. Not sure how to assign the distributions accounts to a tax line to get them to show up properly on the K-1 when quickbooks info is imported into turbotax.
QuickBooks Team

Re: Tax line assignment for partner distributions

Hello, rha9.

 

To walk you through on how to show up accounts on the K-1, I’d recommend contacting the TurboTax support. They’re more knowledgeable and well trained about their products functionality.

Here’s how to reach them:

  1. Visit this link: https://support.turbotax.intuit.com/contact/
  2. Choose a product and type in your concern.
  3. Scroll down and click the Get the phone number button.

Comment down below if you have other questions with QuickBooks.                                   

Active Member

Re: LLC is not important, how the LLC is taxed for federal in...

I have the scenario explained above in a three partners LLC.

Is it correct to transfer the RE to a sub bank (capital) accounts for each member and at distribution time do a journal entry debit to the account and credit to the partners?

Experienced Member

Re: LLC is not important, how the LLC is taxed for federal in...

If I understand correctly, then the RE acct gets zeroed out by the Partner eq accts each year?

 

Established Community Backer ***

Re: LLC is not important, how the LLC is taxed for federal in...

Capital Accounts are never Bank or Subbank. That is Equity. Retained Earnings is Equity. If you want to allocate RE to individual member or partner equity accounts, that still is equity. Nothing moves to Bank.

Experienced Member

Re: LLC is not important, how the LLC is taxed for federal in...

Sorry, not to belabor the point but, I used a journal entry to allocate the 2018 retained earnings (-$57,000.00) to the partners based on their ownership %.

That journal entry decreased each partners equity acct and zeroed  the retained earnings acct for 2018.

This seemed correct to me, but QB cautioned me (a pop up dialog box) not to be adjusting the RE acct, so that confused me. Thank you, again

Best,

Brian Gerhart 

Established Community Backer ***

Re: LLC is not important, how the LLC is taxed for federal in...

You see this on the Year End financial reports: "I used a journal entry to allocate the 2018 retained earnings (-$57,000.00) to the partners based on their ownership %."

 

Along with Net Income. The value you want to reallocate is the RE for the first date of the new year. Not the year end date.

 

This is a Yellow Triangle = Warning, not Red X = Error: "This seemed correct to me, but QB cautioned me (a pop up dialog box) not to be adjusting the RE acct, so that confused me."

 

It is making sure you Really intend to do what you are doing. Yes, you would do this for the first date of the new fiscal year, but not until all Tax Prep year end entries are also made, from the tax form (1065, 1120S) because until these are entered, you are not "done" with that year.

 

Example:

 

On Dec 31, I see Net income, Distributions, and Retained Earnings. On Jan 1, the Net income is now part of Retained earnings. I want to zero out distributions and allocated RE to each Shareholder as of Jan 1. But the tax return is not due until March 15, so you might not have your final year end values, on Jan 1.

Experienced Member

Re: LLC is not important, how the LLC is taxed for federal in...

Thank you so much for taking the extra time to explain fully. You're the Best!

 

Brian Gerhart

Frequent Explorer *

Re: LLC is not important, how the LLC is taxed for federal in...

I know I am late to this discussion but I assume that what gets rolled into the equity account(s) is book income?  Are any adjustments made to the equity(capital) accounts for tax differences? 

 

Thanks

Established Community Backer ***

Re: LLC is not important, how the LLC is taxed for federal in...

It is always possible there will be adjustments as a result of preparing your income tax return since

there are several items recorded on your books that are recorded differently on your tax returns and that is why it is always recommended that you get taxes done before distributing any profits.

Community Contributor **

Re: LLC is not important, how the LLC is taxed for federal in...

I am doing the books for a one of the partners of a partnership.  He is maintaining his own set of books.  He is receiving a draw from the partnership set of books.  How should he record this 'income' in his set of books.

Moderator

Re: LLC is not important, how the LLC is taxed for federal in...

Hey there, @mdmccoy06.

 

Thanks for joining this conversation. Allow me to step in and share some information about recording an owner's draw in QuickBooks.

 

To start off, your client needs to set up an owner's equity account and write a check from it. The steps do this may differ depending on the QB version he is using.

 

You can provide these articles to him for the detailed steps:

 

 

That should help him record the draw he received. Please post again or leave a comment below if you need anything else. I'll be happy to answer them. Cheering you to continued success.

Community Contributor **

Re: LLC is not important, how the LLC is taxed for federal in...

I understand the payment of the draw by the company but what I am seeing in his set of books is the receipt of the draw to his own business account - shouldn’t that be handled differently on his end?

Established Community Backer ***

Re: LLC is not important, how the LLC is taxed for federal in...

Now you are referring to a different entity, so would have to re-start the Q&A with same question:

What type of entity are "his books?"