Sign Montana Assignment of Partnership Interest Myself

Document type sign assignment of partnership interest montana myself

hello and welcome to the session this is Professor for hat in this session we're going to be looking at key concept the taxation of Watership income specifically we're going to be looking at capital interests profit and loss interests special allocation as well thus topic is covered in a corporate or tax to income tax course the CPA exam regulation section as well as the enrolled agent exam as always I would like to remind you to connect with me on LinkedIn if you haven't done so YouTube is where I have my 1,500 plus accounting auditing finance and tax lectures for example this topic is covered in income tax I do have 12 other courses that I cover topics and so please like my lectures if you like them share them put them in the playlist let the world know about them if you're Bennett benefiting from my lectures it means they might benefit other people please share the wealth also on my website I do have additional resources in addition to the lectures such as notes PowerPoint slides questions multiple choice true/false and if you're studying for your CPA 2,000 plus CPA question so let's take a look at the overall picture of a partnership the first thing you wanna know is partnership is not a federal taxable entity is not so it doesn't pay taxes as it is a partnership on a federal level it's a pass-through or flow through entity you know what does that mean this is an important concept and you're gonna see this concept again when we look at S corporation and look SS as in same corporation versus C corporation that we already looked at what does that mean it means the taxable income or loss of the partnership flows go through the goes through to the partners at the end of the taxable year so simply put it looks something like this the partnership will complete what's called an informational form 1065 they report their income then they report the reduction the business deduction okay then take the income minus deduction and they will have a profit ordinary so it's assumed they reported one hundred thousand an income sixty thousand in deduction therefore the profit is forty thousand okay so we said 100 sixty introductions totaled therefore the ordinary profit is 40 now this profit it's gonna flow through four called k12 each partners each partner gets a form a k1 phone and then we'll tell them for example let's assume we have four partners in each 25% therefore partner a will get 10,000 partner B will get 10,000 C 10,000 in the 10,000 so simply put each one of them will get a k1 which if it's a four and will tell them their share of the profit okay the result would apply whether the partnership distribute the cash or did not distribute the cash whether the partnership distribute 10,000 or not that's irrelevant it's deemed to have been distributed the partners withdrawals generally are not taxable unless they exceed the partner spaces which we'll see later on but generally speaking if you're not told if you are not told otherwise if they would drew money from the partnership that's not taxable anyhow we're gonna be covering this topic later on in a separate recording so let's take a look at an example just to see how this flow through or pass-through entity work add them contribute land with the basis of 60 in exchange for 40 percent share of the profit and loss of the calendar year ABC LLC in 2018 ABC generated 200 thousand of ordinary taxable income and distribute five thousand in cash to Adam so what's going to happen the corporation of no sorry the partnership made two hundred thousand Adams shear is 40% I like that name Adam so thirty two thousand is what goes to Adam now notice the partnership only contributed $5,000 it doesn't really matter whether they contributed the thirty thousand or not okay Adam is responsible for including $32,000 of the of the profit in their taxable income the same would result if they incur the loss Adam will have 32,000 thirty-two thousand of losses whether those losses are deductible or not there are special rules for that would look at later let's go back and visit the partnership agreement the partnership agreement is the agreement that's signed by each partner and they agree on the rights your obligations important the allocation of income production and cash flows so basically they would agree on how to allocate allocate means they decide they decide how much income goes to a how much income goes to B how much income goes to C they decide how much losses goes to a B and C so on and so forth and also outlined the initial and future capital contribution requirement if any conditions for terminating the partnership another matter basically the partnership is the it's what they go back to in case there is any disagreement gently believe it or not for a general partnership you don't have to have an agreement but it's always good to have a partnership agreement now we need to be familiar with three terms okay one is called capital interests profit interests in-laws interests CI P I and Ally basically P I and I'll either together so what a CI its what's your capital interests its the partners percentage ownership of capital or equity in the net asset of the business simply put the for dealing with the corporation we say you own 30 percent of the stocks okay well partnerships don't have stocks when you have ownership in a partnership it's called capital interests now profit loss and shared losses those two partners share of operating income profit or loss specified in the partnership agreement so notice you can determine how you're going to allocate the profit and loss in any way you want to okay so this is the profit and shared loss let's take a look at this example a and B for a MV partnership a contributed forty thousand be contributed sixty thousand so what is the capital interest for each well in total they contributed one hundred thousand a contributed forty percent B contribute at sixty percent so notice the capital interest is not negotiable so CI is not negotiable if you contribute at forty thousand I cannot give you fifty thousand I cannot give you 35 I have to give you your amount which is if it's forty thousand forty out of 100 is forty percent now a year and the partnership had a net income of ten thousand what are the profit interests for a what's the profit interest for B now if you say forty percent a 40% 60% B you are not wrong because you not giving any information but it does not have to be the case for the profit and loss which is a profit here for the P I or the Li interest you can have any combination for example you would say a would like to absorb 30 percent and we would absorb 70 percent or a 50 and B 50 they can agree on any percentage that they want to so the profit interests or the loss interest for that matter is based on the partnership agreement it is negotiable it is negotiable in contrast to the capital interest which is not negotiable so that's what you need to know now we have something called special allocation and this occurs when the profit and/or loss interest is different than CI so simply put in the prior example if we gave them 5050 profit and loss ratio 5050 then we have a special allocation because it's supposed to be 40 60 unless unless told otherwise pinc I equal to P I and Li equal to CI so if you are not told anything like for example in this example we were not told anything under those circumstances you would say 4000 goes to a 6000 goes to B unless you are told otherwise you could always assume that P I that CI equal to P I and Li is equal to CI so you would use the capital interests for the allocation let's take a look at an example to kind of wrap up what we just talked about he contributed 100,000 in exchange for 40 percent interest in the calendar year for ABC LLC which is taxed as a partnership this year of the LLC generated $80,000 of ordinary taxable income in E would grow 10,000 from the partnership what is e taxable amount what's the taxable amount well the partnership generated $80,000 is of soy is ownership his ownership is 40% therefore the taxable income for is 32,000 but hold on a second he only withdrew 10,000 it does it's not relevant the 32,000 will flow through to e and that's the taxable amount for E now what about the $10,000 well the $10,000 is not taxable because it doesn't exceed the basis we are not told that it's it exceeds the basis and we'll talk about that later on but generally speaking the distribution is not taxable if you have any questions any comments about this topic please let me know in the next session I would look at contribution to partnership what does that mean it means when the owners when the partners contribute money cash property or even liabilities or services for that matter to the partnership now please I would like to remind you as always to visit my website I do have additional resources additional lectures if you're interested and if you're interested in signing up I 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