Are "draws" the same thing as "Distributions" (i.e. K-1 Line 19)?

Forum|Forum|5 years ago
February 17, 2021
1 reply
0 views

I'm trying to fill out the 1065 K-1 and getting hung up on how draws come into play and whether or not this is the same thing as "Distributions" (line 19). I understand draws as the amounts of money partners in an LLC withdraw from the business' bank account into their own, and which don't have a direct effect on the K-1 (because the K-1 is a reflection of the percentage of the business' total income they are responsible for, i.e. Part III Line 1) per other threads I've read here on the forums (like this one: https://ttlc.intuit.com/community/business-taxes/discussion/where-do-i-report-an-owner-draw-on-llc-1065-k-1-2-partners-who-also-get-a-salary-is-the-draw-subject/00/379399#:~:text=An%20owner%2Ddraw%20is%20not,is%20simply%20an%20informational%20return).

Could someone help clarify what K-1 Line 19 is, and if it's different from a draw per the definition above? It appears to me that any amount entered into Line 19 would then find it's way into Line Part II Line L, which would have a direct effect on the amount of tax due (which makes me think it must not be the same as draws, which as I understand shouldn't have that effect)

Any help is greatly appreciated

gloriah5200

Draws (short for "withdrawals") are the same as (cash) distributions. The term "draw", however, is usually applied to distributions of cash, not property.

Generally, distributions to a partner from the partnership must be accounted for. The distributions will generally reduce their basis in the partnership.

Line 19a is for cash and marketable securities-a partner taking a cash distribution, other than "guaranteed payments" from the partnership. Guaranteed payments are like wage income and reported on line 4a

Line 19b is for Section 737 "Built-in gain" property contributed

Line 19c is for property distributed to the partner from the partnership using the partnership's adjusted basis immediately before the distribution.

Partners pay tax on their share of the partnership's earnings, which may or may not bear a relationship to distributions.

From the IRS:

Partnership distributions include the following.

A withdrawal by a partner in anticipation of the current year's earnings.
A distribution of the current year's or prior years' earnings not needed for working capital.
A complete or partial liquidation of a partner's interest.
A distribution to all partners in a complete liquidation of the partnership.

A partnership distribution is not taken into account in determining the partner's distributive share of partnership income or loss. If any gain or loss from the distribution is recognized by the partner, it must be reported on his or her return for the tax year in which the distribution is received. Money or property withdrawn by a partner in anticipation of the current year's earnings is treated as a distribution received on the last day of the partnership's tax year.

Certain distributions treated as a sale or exchange.

When a partnership distributes the following items, the distribution may be treated as a sale or exchange of property rather than a distribution.

Unrealized receivables or substantially appreciated inventory items distributed in exchange for any part of the partner's interest in other partnership property, including money.
Other property (including money) distributed in exchange for any part of a partner's interest in unrealized receivables or substantially appreciated inventory items.

jfwong

I received stocks from my company, and the company was acquired by another PE, so I received a final 1065 K-1, with 9a = 19a, then 19c with footnote of FMV and tax basis. I only received cash distributions = 19a = 9a. However, I reinvested 19c back to my company. Therefore, only 9a/19a is taxable LTCG for me this year? Also, how to input it in TT? Should I put "This partnership ended in 2022", then next page, "Disposition was not via a sale", then next page leave purchase and sale dates as blank? So only 9a/19a is taxable as LTCG, and 19c is not taxable? Thanks!

RobertB4444

A cash distribution is only taxable if the amount of it exceeds your basis, or the amount that you have invested in the company. If that is the case here then the amount is taxable even if you reinvested it in the company, so check to see if the distribution is in excess of basis.

When entering the sale of the company you are correct to click the 'Partnership ended' and 'disposition not via a sale' buttons. But you should enter the date that it was dissolved as the sale date and enter the amount that you received and then your basis in the sales information section. Like I said, if you made a profit on liquidating the company it is taxable.

@jfwong

**Say "Thanks" by clicking the thumb icon in a post**Mark the post that answers your question by clicking on "Mark as Best Answer"