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What to do now that I am K1 partner?

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  • #16
    Originally posted by spiritrider View Post
    An LLC is a state chartered business entity. The IRS considers an LLC that has not elected to be an S-Corp a disregarded entity for tax purposes. A single member LLC is considered a sole proprietorship and a multimember LLC a partnership. They file as their respective IRS entity types.
    This is what I am worried about. This would mean that the K1 would still be reported on the doc's individual tax return as if the LLC didn't exist? Where would the expenses paid through the LLC go? It sounds like it would show up on schedule C as expenses but no income? That seems like it would raise some red flags. I think I need to find a new tax advisor...

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    • #17
      Originally posted by SadlerMDInvestor View Post

      Thanks for insight and taking the time for the reply! I may be completely misunderstanding why our practice does this (I hope not...). I was told the IRS frowned upon UPEs, which is why the other partners did the single member LLC. This way, each doc could have a separate LLC bank account and credit card they could use for their expenses that weren't paid at the partnership level or reimbursed. And instead of Dr. A getting a K1 from the practice, Dr. A, LLC would get a K1.

      I haven't been partner long enough to file my yearly taxes, but is this something that is possible? If Dr. A, LLC (not an S-Corp) receives the K1, does that K1 still get reported directly on Dr. A's schedule E as if Dr. A had received the K1 directly? And where would the expenses paid from Dr. A, LLC's bank account get reported on their tax return? This is all assuming the single member LLC is not an S-Corp and the only income it receives is from Dr. A's participation in the practice (and nothing else).

      I'm starting to think I got some pretty sloppy tax advice.
      spiritrider says it so much better than do I! tttt, we have zero clients with the setup you describe. I believe the K1 could be reported either on sch C with additional expenses added or on sch E with UPE. spiritrider may want to provide more info or a contrasting opion.

      Neither have I heard of the IRS frowning upon UPE. Expenses qualifying for UPE, as I mentioned above, should be laid out in the partnership agreement as the responsibility of the individual partners rather than the partnership. This concise article explains it. For practical purposes, I would guess most partnership agreements are not in compliance with this requirement and this may be why you got that comment. Not that difficult to amend the agreement with a simple statement, though.
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #18
        Originally posted by jfoxcpacfp View Post

        spiritrider says it so much better than do I! tttt, we have zero clients with the setup you describe. I believe the K1 could be reported either on sch C with additional expenses added or on sch E with UPE. spiritrider may want to provide more info or a contrasting opion.

        Neither have I heard of the IRS frowning upon UPE. Expenses qualifying for UPE, as I mentioned above, should be laid out in the partnership agreement as the responsibility of the individual partners rather than the partnership. This concise article explains it. For practical purposes, I would guess most partnership agreements are not in compliance with this requirement and this may be why you got that comment. Not that difficult to amend the agreement with a simple statement, though.
        This forum is awesome, and I really appreciate the thoughtful replies! I will find a new CPA to chat with. It sounds like I may be getting some bad advice. URP sounds like the way to go. In practice, it is implied partners incur these expenses on their own, but amending the partnership agreement with the size of our practice could be a bit of a challenge

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