Pictures missing (slide 56 & 57) Example 19 – Income Measurement and Reporting Continue with the information in Examples 16-18. In addition to the business income and separately stated items described in Example 18, the LLC also reports the following information that the LLC members will use in preparing their tax returns. Additional Information (Schedule K) Net Earnings (Loss) from Self-Employment (Line 14a) $150,000 AMT Adjustment – Cost Recovery (Line 17a) 18,224 Tax-Exempt Income – Bond Interest (Line 18a) 2,100 Distributions (Line 19a) 34,000 Investment Income (Line 20a) 12,000 Other Information for LLC member-level Calculations Investment income on line 20a (used to calculate any allowable investment interest expenses deduction) includes Beachside’s short- term capital gains but does not include favorably taxed qualified dividends. 18
Other information for LLC member-level calculations is reported on supporting schedules and includes net investment income (for calculating the net investment income tax), excess taxable income (for calculating business interest expense carryover deductions), and information the members need for qualified business income calculations Example 20 – Income Measurement and Reporting Continue with the facts in Examples 16 to 19 Also assume that Beachside’s book income is $492,100 Beachside Properties, LLC, must prepare the Analysis of Income (Loss) and Schedule M–1 on Form 1065, page 5 In preparing these schedules, the LLC combines the ordinary income of $180,000, guaranteed payments of $240,000, and the four separately stated income and deduction amounts to arrive at “net income” of $730,000 This amount is shown on line 1 of the Analysis of Income (Loss) and is the amount to which book income of $492,100 is reconciled on Schedule M–1, line 9 Missing Image (Slide 60) Example 21 – Balance Sheet and Capital Accounts Continue with Examples 16-20 and the Beachside Properties Form 1065 excerpts. Beachside prepares its Schedule L and Schedule M-2 using the same method, so Beachside’s beginning and ending capital accounts have the same balances on both Schedule L and Schedule M-2. In addition to Beachside’s book income, Schedule M-2 also reflects the $30,000 cash distribution to Maria, payment of medical expenses of $4,000 to Kyle, and (as discussed late) a $110,000 cash distribution from Maria. Example 22 – Special Allocations Continue with Examples 16 to 18, and the Beachside Properties Form 1065 excerpts Maria arrives at the bakery at 4 A.M. (or earlier) six days a week to make sure her cinnamon rolls and croissants are ready when the Cafe opens at 7 Consequently, the other LLC members have agreed with Maria that she should be allocated the first $30,000 of gross revenue from bakery operations each year, starting in year 2 Although the § 704(b) book income may differ from the $180,000 taxable income, to simplify this illustration, assume they are the same amount Maria is entitled to the first $30,000 shown on that page
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- Spring '16
- Accounting, Types of business entity, partner, Limited liability partnership