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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Re: K-1 form question Date: 4/5/2013 2:55 PM
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Sounds to me like the lawyer and K-1 are correct.

In a partnership (or an LLC taxed as a partnership) each owner pays income tax on their share of the partnership's income, whether or not it is distributed.

So yes, you pay tax on $1100 even though you only received $1000 in cash.

But all is not lost. You now have $100 of undistributed earnings in the LLC. That adds to your basis in your ownership interest. When you eventually dispose of the ownership, that $100 will reduce your gain or increase your loss.

So it all works out in the end. But it is possible to pay tax on money that you haven't received.

--Peter
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