LLC & Partnership

What is Partnership Taxable Income?

Partnerships or LLCs taxed as partnerships, don’t pay federal income tax.  Instead we say they “flow through,” the income to their owners.  So what do we mean, when we use the phrase, “Partnership Taxable Income?”  There is a statutory definition to this phrase, but that definition is generally not what we are talking about.  I…

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Old trick, new rule – The end of Bottom Dollar Guarantee

Tax basis is important for partners in a partnership because: It determines if a distribution is taxable It determines if there is a gain on selling your partnership interest It determines if a partner can deduct “flow-through” losses For all of the above reasons, partners would generally prefer to have a higher tax basis in…

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Single owner buys a Multi Member LLC

The tax category of LLCs can depend on the number of owners as well as the elections the LLC has made.  Let’s assume there is a multi member LLC that chose to be taxed as a partnership, and the owners are now selling their LLC interest to a single outside party.  How should that transaction be treated…

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How to determine the tax basis of your new LLC interest

There may be both current and long-term tax consequences to consider when becoming an LLC owner.  If the LLC is taxed as a partnership, then you have the flow through of future taxable income hitting your personal tax return.  However beyond the flow through mechanics, I recommend you take note of your tax basis in…

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Tax considerations when purchasing an LLC interest

There are a number of considerations when buying ownership or even just part ownership of a business.  If you are buying out someone else’s LLC membership, here is one more tax opportunity to consider.  This discussion assumes the LLC is being treated as a partnership for tax purposes.  If the LLC you are buying into…

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LLC Recourse Debt and Tax Basis

When I think about the kind of liabilities I typically see in a service business, I imagine credit cards, bank lines of credit and personal loans from the owners, their friends or family. Owners of an LLC treated as a tax partnership, include an allocation of the LLC liabilities as part of their tax basis…

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Do you have a bad boy guarantee on your LLC debt?

And so what if it does? What I’m referring to as, “bad boy guarantees,” are when LLC owners sign contingent guarantees of their LLC’s debt.  Traditionally these agreements are structured so that the guarantee kicks in causing the owners to be personally liable for the debt, if there are bad acts committed, like not paying taxes, gross…

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How to treat an LLC converting to multiple members

If you have been the sole owner of your LLC, that is referred to as a single member LLC.  The default tax federal income tax treatment for your single member LLC is to disregard it.  That’s, right your single member LLC is called a disregarded entity, for federal tax purposes, unless you elect to treat…

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