Q: I'm a partner in a busines in CA and I need help with a question related to the personal income tax for profits didntget
The business made $33,000 in profits and they sent me an IRS form to put $11,000 for personal income to which i have to pay personal income taxes on (There are 3 partners in the business). My issue is that I never received any of those profits to pay that tax with. All the work I've done for the business has been volunteer on my part as I dont get income from the business, only the business gets the money from the work I do and the other partners handle all the finances. I'm very confused of this situation as I'm leaving the company and need to sort this out.
This can be a confusing issue for many taxpayers who are partners in a partnership. As a partner, you will report your share of income that is listed on your K-1. With partnerships, you are taxable on your share of income regardless of whether or not you received a distribution. The tax laws with respect to partnerships distinguish between "allocations" and "distributions."
As a partner, you are "allocated" your share of partnership income. You will be taxed on this amount even if the partnership does not "distribute" those funds to you. This presents the often confusing result of being taxed on money that you never "actually" received.
You did mention that you are leaving the company. This has many tax consequences that beyond that scope of what can be accurately discussed on this post.
Finally, please do not take this as definitive legal advice. This is a general outlay of how the partnership code works with respect to the specific issue of being taxed on your allocable share of income that you never received a distribution of.
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