This is related to a partnership - we are trying to do everything
ourselves - including the books. We are not accountants, but we can
not help ourselves (there may be a pun there):
A partner made a $1,000 out of pocket purchase for the business
We increased his (owner's) equity by $1,000 as an investment
We got reimbursed by our client for the $1,000, and we issued a check
to the partner for $1,000
Does it matter (for the K1 and his taxes) whether this is entered into the
books as a Draw or a reduction in his Investment (we are wondering if
he will be taxed on the money he let the money "borrow" for a short
period). If the entry makes a difference, what is the correct thing to
do?
To better our understanding:
Say two partners start a business and each invest 12,000 of their
money and agree to set up an automatic monthly draw for each of
$1,000. If they do not do any business (no income, no expenses) for
the next 12 months, they would each at the end of the year have a $0
equity balance? Now, will the K1 indicate that they each have made
$12,000 that year, and would they have to pay taxes on these
draws/distributions? If not, does that mean that taxes are only paid
on the net income (of $0)? Anything to help us understand.....
Jack & John |
