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K1 - begining capital account

Forum|Forum|5 years ago
January 20, 2021
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Hello, I have been doing taxes for a small farm inherited from my parent for couple a years now. There are 7 owners. We made it a LLC in 2017. This year when doing the taxes in Turbo Tax Business I noticed a section that I have not done before. It is the K1 Sec L area referring to Beginning Capital Balance where it is looking for an amount. There is no amount in the previous year K1. I have a checking account with funds to support the farm that was funded from my parents estate. I am guessing that I did not enter this amount in previous years. I am not sure what to do. Looking for some help. It is a farm where we rent the land to a local farmer.

TurboTax Business Windows

Best answer by ThomasM125

Section L on the partnership K-1 schedule represents each partner's equity in the partnership. Since your partnership has only be in existence a few years, you may be able to calculate the number.

Take each partner's original cash or value of property contributed to the business, add/subtract their share of income/loss for each year and add or subtract any cash or the value of property distributions or property contributed to the partnership. Do this through the end of 2019, and you will have the beginning balances to report on your 2020 tax return.

Turbo tax will automatically adjust the schedule once you report the correct beginning balances.

Schedule L will not affect the income or loss reported on schedule K-1, so it doesn't normally have any affect on the accuracy of reporting of the partnership income or loss on your personal tax return.

It comes into play if your equity in the business becomes negative, in which case you may not be able to deduct losses reported on the K-1 form. Also, when you dispose of your interest in the partnership, you need to know what your basis is to determine a gain or loss that may need to be reported on your tax return. The capital account balance can aid in determining your basis.

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Mike9241

their beginning capital would not only be the pro-rate share of the cash but also of the farm assets net of any depreciation that should have been taken.

M-MTax

I'd say you need a tax pro for this whole thing. Beginning capital account number would be the value each one of the 7 contributed to the llc or 1/7 the value of the farm. Then each year the accounts are adjusted for income, loss, distributions, withdrawals, etc. It's a lot of work and you need to know what you're doing. Use a tax pro.

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ThomasM125Answer

Section L on the partnership K-1 schedule represents each partner's equity in the partnership. Since your partnership has only be in existence a few years, you may be able to calculate the number.

Take each partner's original cash or value of property contributed to the business, add/subtract their share of income/loss for each year and add or subtract any cash or the value of property distributions or property contributed to the partnership. Do this through the end of 2019, and you will have the beginning balances to report on your 2020 tax return.

Turbo tax will automatically adjust the schedule once you report the correct beginning balances.

Schedule L will not affect the income or loss reported on schedule K-1, so it doesn't normally have any affect on the accuracy of reporting of the partnership income or loss on your personal tax return.

It comes into play if your equity in the business becomes negative, in which case you may not be able to deduct losses reported on the K-1 form. Also, when you dispose of your interest in the partnership, you need to know what your basis is to determine a gain or loss that may need to be reported on your tax return. The capital account balance can aid in determining your basis.

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gvanbooven123Author

Thanks, very helpful. Would I include the real estate value of the property in this calculation. The only assets that I see would be the real estate value and the cash in the account. There is a house and barn on the property but is not used by the farmer so I am no including any costs associated with them. I used the same bank account to pay for the house and barn maintenance that I use to deposit the income from the rental farmland. This comingling of funds may be causing problems.

M-MTax

The real estate value would be the ORIGINAL contribution from what you said in your question. You have an llc with multiple members with income, expenses, and depreciable property AND you clearly did not understand one word of what was written in the answers. You NEED a tax professional.