Question

If I have a 50/50 LLC and one of us makes money on something but not the other member, can we log it on our K1 differently?

Forum|Forum|2 years ago
February 13, 2024
1 reply
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To add more detail to this, I am in a 50/50 partnership LLC for music. We don't want to dissolve the partnership, but occasionally one of us will do more for the music business than the other person such as write a song that gets used in a commercial and only one of us did it. How can I allocate the profit differences so that the person that benefited from that song pays the earning taxes while the other person does not?

Similarly, for losses, sometimes one of us upgrades our equipment or puts money into a song while the other does not, so the person that bought more should benefit from the tax deduction and we would need to allocate that separately as well.

Can this be done and show up on our K-1 when we submit them on our personal taxes?

According to google this is possible - I have the flexibility to allocate profits and losses in a manner that is different from the ownership percentages. This is known as "special allocations" or "allocation of profits and losses."

PatriciaV

A special tax allocation is an allocation of an item of partnership loss, deduction, income, or gain among the partners that’s disproportionate to the partners’ overall ownership interests as stated in the partnership agreement. This treatment is an exception to the partnership rules. It can be done, but you must be careful to avoid the risk of IRS scrutiny. To protect the future of your LLC, consult a tax pro with experience in partnership taxation.

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