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Gary Bode, CPA is a Master's Degreed, nation wide accountant offering tax and business services. Member of AICPA and NCACPA. Our virtual office provides excellent service to long distance and international clients. Call (910) 399-2705 for a free phone consult.

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I have been using TurboTax for years but encountered an investment situation that TurboTax is not designed to handle. After searching the web for local CPAs/Accountants and chatting with a couple on the phone I was unable to find someone locally with sufficient experience in my particular situation with whom I felt comfortable. Deciding to broaden my search beyond my local area I discovered Gary's website and a detailed discussion with options pertinent to my situation. During a brief phone conversation, Gary answered all of my questions, explained how we would exchange information online and gave me an estimate for preparing my current tax return and an amended return. It was a pleasure working with Gary. He delivered everything he promised with no surprises.

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LLC CPA gives an example of Partnership Distributions | Form 1065

LLCs can elect how they’re taxed. In this post, the LLC chooses to be taxed as a Partnership and files Form 1065 with the IRS. The following example illustrates a common trap for LLC Members; the IRS treats a reduction in a Member’s share of LLC debt as a cash distribution.

The following example is not comprehensive. And the IRS devotes lots of tax code to Partnership distributions. You can’t rely on this post as a reasonable basis for tax planning or Form 1065 preparation.

Let’s assume Member Mark holds a 25% interest in NC CPA, LLC, and has a tax basis of $25,000. The LLC distributes $25,000 to Mark in a non-liquidating distribution. After the distribution, Mark maintains a 15% interest in the LLC. Most folks would correctly figure that Mark has no tax consequences based on this simple fact pattern.

But NC CPA, LLC has $200,000 of debt. Before the non-liquidating distribution, Mark’s share of that liability is $50,000 (25% x $200,000). But afterwards, Mark’s share of the debt is $30,000 (15% x $200,000) . The IRS considers this $20,000 decrease in debt as a cash distribution to Mark. So, while the $25,000 of cash had no immediate tax consequences to Mark, the extra $20,000 of reduced liability is considered a Capital Gain.

I’m a LLC CPA with a virtual office to serve clients beyond my Wilmington NC geographical base. If your LLC doesn’t already have a CPA, or you like what you read, consider calling (910) 399-2705 for a free phone consult.


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