Question

If I received $41,000 as a distribution from an investment club, is it taxable income?

Forum|Forum|4 years ago
February 23, 2022
1 reply
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I reported it in Turbo tax but after entering all the info from the K1 it came up as 0

TurboTax Deluxe Online

Employee

It depends. Generally, only distributions in excess of basis are taxable. So as long as you invested more in the club than you have received, you don't pay tax. However, be sure you entered the K-1 information correctly and that you can verify the reported capital activity. Your records may be different than the reporting entity, but you should be able to identify the differences.

See IRS Pub 541 Partnership Distributions and Partnership Adjusted Basis

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J

jsouza8647Author

In TurboTax the section involving sale information says using the K1 and supporting documents enter the information about your sale of Ridgeline Associates. I have a withdrawal distribution report that identifies the tax consequences for 2021. This information does not appear on the K1. It shows the tax basis prior to withdrawal of $3,346.57 and a current year earnings of $245.97 resulting in an adjusted tax basis of $3, 592.54. It also shows the amount received and the realized gain. Should this information appear on this section of TurboTax? It has 0’s showing now.

D

DianeW777

All entries on the K1 should report the income from the investment club that is required to be reported on the tax return. If this was the last year in the investment club and you actually redeemed/sold your share of the investment club then a sale or redemption needs to be reported as well, separate from the K1 entries. Here are some tips that may help.

The K-1 may show your capital account, however you should maintain an ongoing cost basis as you go along. Any dividends that are paid directly to you are income, but not more investment. If your dividends are used to purchase a greater share then they are taxable income and also, because of this, they are added to your initial investment which can make the record keeping difficult unless you are in the habit of maintaining up to the minute information. Excel can be good for this.
Your capital investment initially, as well as any capital contributed will be used to offset any sale or redemption when you want to get rid of this investment. At that time you will see that your investment is used to reduce your tax.
For this investment, the K-1 will be the document that provides all the information you will report on your tax return each year.

Please update if you need further assistance and provide any clarification you can.

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