ARE PROFITS FROM A PARTNERSHIP DOUBLE TAXED?

I am concerned in the real-estate investment partnership. My apportionment of the increase done final year were $50,000. I had to compensate taxes upon which profit, so I withdrew $20,000 to compensate the taxes. Now my accountant tells me which the $20,000 I withdrew is deliberate the division as well as will be taxed subsequent year. It only doesn’t have clarity to me which I should be taxed twice upon the $20,000 – ESPECIALLY when it was sent to the IRS!

Tagged as: double, From, partnership, Profits, taxed

{ 3 comments… read them below or add one }

Wayne Z September 25, 2010 at 1:30 am: Your accountant is wrong.

Distributions are not taxed assuming that you have a basis in the partnership. Even if your basis was $0.00, the $50k in income increased the basis to at least $50k.

The $20k distribution is not taxed.

He seems to be confused between partnerships and corporations. Partnerships pay distributions, not dividends.
biz guy September 25, 2010 at 1:45 am: Wayne Z is correct. Distributions from a partnership or other pass-thru entity are not taxed as dividends. Dividends are paid from the Earnings and Profits (E&P is specifically defined in tax law) of a corporation. Distributions from pass-thru entities such as partnerships or S corporations are payouts of money on which you have already paid tax. A few years ago before some terminology changes in tax law they were referred to as PTI – Previously Taxed Income.

Had you already drawn out the $50k profit from last year? If the $20k came from this year’s profits, he might be thinking of it that way, but you will pay tax on this year’s profits next year anyway not because you took them out to pay last year’s tax and his terminology is wrong.
Kevin M September 25, 2010 at 2:30 am: Your accountant is wrong. I would strongly suggest getting someone qualified or else you are looking at paying tax on money you shouldn’t.

Distributions from partnerships are not taxable unless your basis falls below zero – then it is treated as capital gain.

ARE PROFITS FROM A PARTNERSHIP DOUBLE TAXED?

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