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Level 1

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 December 10, 2018

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Level 15

Distribution of income to partners

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

View solution in original post

22 Comments
Highlighted
Level 15

Distribution of income to partners

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

View solution in original post

Highlighted
Level 15

Distribution of income to partners

"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.

Highlighted
Level 1

Distribution of income to partners

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.
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Anonymous
Not applicable

Distribution of income to partners

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.                                   

Highlighted
Level 1

Distribution of income to partners

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?

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Level 2

Distribution of income to partners

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

 

Highlighted
Level 15

Distribution of income to partners

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.

Highlighted
Level 2

Distribution of income to partners

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 

Highlighted
Level 15

Distribution of income to partners

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.

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Level 2

Distribution of income to partners

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

 

Brian Gerhart

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Level 1

Distribution of income to partners

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

Level 8

Distribution of income to partners

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.

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Level 2

Distribution of income to partners

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.

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Moderator

Distribution of income to partners

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.

Highlighted
Level 2

Distribution of income to partners

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?

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Level 8

Distribution of income to partners

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?"

Highlighted
Level 1

Distribution of income to partners

Thank you for your reply, it was very helpful.  I set it up as you suggested, and recorded the journal entries.  The retained earnings was reallocated to equity for each partner, and then I debited their equity account and credited their distribution account in the amount to be distributed.  After cutting the profit distribution checks, what journal entry do I use to reduce operating cash by the check amount?  As of now my Operating Cash is out of balance by the amount of the profit checks that were cashed.

 

Thanks!

Highlighted
Level 1

Distribution of income to partners

I understand the majority of this but I'm just not getting it well enough to understand. I'll try to explain and hope somebody can help.

 

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. Does this happen automatically?

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% Is this one of the 3 accounts that are under the partner equity account? (Do all 3 accounts there get summed together? Equity, Draw, Investment?)
credit partner 2 equity for 50%

 

you close the drawing and investment as well as the retained earnings account to partner equity with journal entries

debit investment, credit equity debit investment for the partner and credit equity of the company or the partner?

debit equity, credit drawing for each partner? or the company equity account?

debit RE, credit equity for the partner share RE is a company account

 

See my confusion? I'm not sure which accounts to debit and which to credit.

 

I've attached my balance sheet for the end of 18 and 19 if somebody cares to let me know what to modify and what journal entries to do for end of year 18 and end of year 19.

 

After this I've got the 1 company  (LLC-S) that owns this partnership and my other company that's much easier as a LLC-C. Rather pay taxes than deal with all this crap.

Highlighted
Level 1

Distribution of income to partners

I got it!!

 

Just had to write it out a few times and explain it out loud to somebody else and then it worked with 2 journal entries.

 

It was all accurate, just not book-kept yet. Our 2nd year in business and didn't know how to close out the first year and the math was easy enough to see but just didn't have it in my mind right.

 

Now for the harder part. Distributions from the 1065 went to an 1120S which paid wages.

 

I think I got this.

 

Don't know how many times I've read the same few posts over and over again to figure this out.


Thanks to everybody that posts.

Highlighted
Level 1

Distribution of income to partners

How would you do this for an LLC that is a taxed as an S-Corp?

Highlighted
Level 1

Distribution of income to partners

This answer makes perfect sense with respect to the partner's capital account.  In our case, we have an LLC loss (Form 1065).  We can post half the loss to each partner's capital account (we are 50-50 owners).  However, in doing so, Quickbooks changes our bank account information to reflect a debit in the amount of the loss.  Our bank accounts should not be debited since the capital account entries are not actually expenses.  How do I make entries in my Quickbooks Desktop 2019 to reduce each partner's capital accounts but not decrease the bank account information?  Thank you.

Highlighted
Level 1

Distribution of income to partners

Hi Rustle, if it is Quarterly dividend paid to the LLC partners is it classified the same way as a distribution. A Check was mailed to all the partners. thank you

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