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K1 Tax Question
Posted on 2/11/25 at 8:13 am
Posted on 2/11/25 at 8:13 am
We are receiving our first K1 distribution sometime this month. The distribution is for 2024 performance obviously, and the business owner is telling us that we are expected to file the taxes on this year's tax return, rather than next year's tax return. This does not seem right since we are collecting the distribution in 2025, and seems like it should be taxed on 2025's tax filing next April. Is there something different with a K1 distribution where this is expected? Or is this a form of tax prepayment for the distribution?
I'll have to get a tax accountant after this year to help us out along the way.
I'll have to get a tax accountant after this year to help us out along the way.
5
Posted on 2/11/25 at 8:24 am to WhiskeyThrottle
you pay the llc's taxes. The distribution doesn't really matter in the scheme of what you pay. So if you were a member in 2024 you get a k1 to file on your 2024 taxes. Hopefully your distribution that you are getting will cover the taxes on it.
Posted on 2/11/25 at 8:24 am to WhiskeyThrottle
Very common. You can't distribute ownership profits reported on a K-1 until you have completed the businesses accounting for the company for the entire year.
Essentially, they don't know what the business made yet and don't have to give you your portion of that money until they know.
Essentially, they don't know what the business made yet and don't have to give you your portion of that money until they know.
Posted on 2/11/25 at 8:27 am to WhiskeyThrottle
Following. We were told to file an extension on our taxes for 2024 because it’s going to take a while for the K1 but we didn’t pull anything out so not sure it’s going to matter for us.
Posted on 2/11/25 at 8:34 am to trux83LSU
quote:
you pay the llc's taxes. The distribution doesn't really matter in the scheme of what you pay. So if you were a member in 2024 you get a k1 to file on your 2024 taxes. Hopefully your distribution that you are getting will cover the taxes on it.
This makes sense to me and is explained better than the guys who set up the distribution model has explained. Thanks.
Probably time to get a CPA involved. Until now our annual taxes were relatively simple.
Posted on 2/11/25 at 8:38 am to WhiskeyThrottle
Yeah I did my own taxes for years until I got involved in our llc. Its definitely better to have a cpa to help with all that.
Posted on 2/11/25 at 9:00 am to trux83LSU
If it’s a simple K-1 with not a lot of money it’s super easy in turbo tax. Depending on your distribution amount in regards to your salary though you may need to be paying estimated taxes and could have a significant amount of taxes owed.
Posted on 2/11/25 at 9:03 am to WhiskeyThrottle
A K-1 and a distribution are two separate concepts. The K-1 you are receiving reflects your share of the profits from the business. You are taxed on that whether any of those profits are distributed or not.
Posted on 2/11/25 at 9:16 am to SloaneRanger
quote:
You are taxed on that whether any of those profits are distributed or not.
This is the biggest shock many new business owners face.
Posted on 2/11/25 at 1:48 pm to Helo
quote:Yep, and why it’s important for the operating agreement to spell out mandatory tax distributions.
This is the biggest shock many new business owners face.
Posted on 2/11/25 at 4:56 pm to Maderan
quote:
Very common. You can't distribute ownership profits reported on a K-1 until you have completed the businesses accounting for the company for the entire year. Essentially, they don't know what the business made yet and don't have to give you your portion of that money until they know
Posted on 2/12/25 at 6:02 am to XenScott
quote:
Very common. You can't distribute ownership profits reported on a K-1 until you have completed the businesses accounting for the company for the entire year. Essentially, they don't know what the business made yet and don't have to give you your portion of that money until they know
This isn’t really true though and on any level beyond a very small business is not an excuse imo. Your should be expecting better if your accounting dept. Taxes are owed on a quarterly basis. If you owe significant taxes due to profits and your company isn’t figuring that out until January, your yearly and quarterly accounting is terrible.
If your profit distribution is large enough to owe estimated taxes beyond the covered withholding amount by your average payroll withholding, any even remotely decent company should be paying quarterly distributions to cover those in the least. It doesn’t need to be the entire profit, for cash flow purposes through the year. But if your salary is something like $100,000 and your profit is $200,000 that would be ridiculous not to disburse anything. If your salary is $100,000 and profit is $2,000 then your taxes owed is likely already covered by payroll withholdings or could be very easily with a minor adjustment.
Posted on 2/12/25 at 8:25 am to SloaneRanger
quote:We ensure we distribute enough to our partners (30% is owned by three different people) so that they dont have to come out of pocket for taxes. On top of any other distributions, but this year was loaded with unexpected expenses, so distributions have been pretty lean
A K-1 and a distribution are two separate concepts. The K-1 you are receiving reflects your share of the profits from the business. You are taxed on that whether any of those profits are distributed or not.
Posted on 2/12/25 at 8:42 am to tigerfoot
quote:
We ensure we distribute enough to our partners (30% is owned by three different people) so that they dont have to come out of pocket for taxes. On top of any other distributions, but this year was loaded with unexpected expenses, so distributions have been pretty lean
This is a medical practice and the doctor has guaranteed to always distribute enough to cover the taxes. That makes much more sense now that I understand a little better what is going on here.
Obviously this is my first go with ownership in a private business like this so I didn't fully understand the lack of a correlation between a K1 and distribution and how taxes apply. Appreciate the responses here.
Posted on 2/12/25 at 8:45 am to WhiskeyThrottle
quote:
This is a medical practice and the doctor has guaranteed to always distribute enough to cover the taxes. That makes much more sense now that I understand a little better what is going on here.
Obviously this is my first go with ownership in a private business like this so I didn't fully understand the lack of a correlation between a K1 and distribution and how taxes apply. Appreciate the responses here.
Mingo will come in to agree that I don't know enough to comment here. But a business like a medical practice generally speaking is consistent business every month. Much more so at least than many businesses, lets say construction or retail.
There's really not a lot of reason IMO for a medical practice to not be doing very regular distributions. Waiting until January once the year is over is just lazy accounting in my limited small business owners opinion.
Posted on 2/12/25 at 8:49 am to baldona
quote:
Mingo will come in to agree that I don't know enough to comment here
You’re learning, you just can’t help yourself
Posted on 2/12/25 at 8:52 am to Mingo Was His NameO
quote:
Mingo will come in to agree that I don't know enough to comment here
You’re learning, you just can’t help yourself
Posted on 2/12/25 at 10:50 am to Maderan
I’m in a similar situation. Except that in 2024 the LLC on paper lost money (our fish crop won’t be fully sold until sometime in 2025) but as owner I drew 100K off the company line of credit as a “salary” though it’d technically a draw. I paid in roughly 35% of that 100K already in taxes.
How does that work as far as my taxes will go since the LLC lost money and my draw was off a bank loan, not off of profits
How does that work as far as my taxes will go since the LLC lost money and my draw was off a bank loan, not off of profits
Posted on 2/12/25 at 12:02 pm to deltaland
Will depend on your equity/basis. Any distributions in excess of basis are taxable cap gains. You may get some basis for your share of the LOC debt.
Posted on 2/12/25 at 8:50 pm to deltaland
quote:
deltaland
I’m not a CPA but you guys should have planned this and may still have time (hint hint).
The company took a line of credit.
The company paid you or gave you a distribution (I’m not quite sure and you could potentially not be quite sure here either hint hint but need to figure that out)
Just because the line of credit was needed to pay you does not mean that the line of credit paid you or it was your draw.
If you are a minority partner but chief employee you need to have that figured out already and in writing. Unless there’s documents tying the two together, that’s what happened. Again I’m not a cpa. You guys need to figure out if there was a better way to do this though. Especially if it needs to happen again.
This post was edited on 2/12/25 at 8:51 pm
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