The process of liquidating a partnership involves complex tax implications that can significantly impact the partners involved. You need to be well-versed in the relevant tax laws and regulations to ensure compliance and minimize any potential tax liabilities for your clients.
Below, you’ll find a few of the top questions from a recent webinar on the topic and their accompanying answers. If you choose to attend the on-demand version of this webinar, you’ll have access to the full recording and the entire list of Q&As.
Q: Do general partners deduct expenses they paid on the Schedule K-1?
A: No, unreimbursed partnership expenses (UPE) are deducted on the partner’s Schedule E (Form 1040), Supplemental Income and Loss.
Q: Are the guaranteed payments subject to self-employment (SE) taxes?
A: Yes, the guaranteed payments are for services provided to the partnership and are subject to SE taxes.
Q: What do we do if a new client doesn’t provide the partner’s inside basis? A: Ask the partnership return preparer for the inside basis amount.
Q: What happens when a partnership closes, and one partner has a positive capital account and the other has a negative capital account, and there is no debt restoration obligation for either?
A: In that case, the partner with the negative capital account will have income on their tax return to the extent they benefited from the negative capital account. The other partner will have a loss to report if they have outside basis left in the partnership.
To learn more about liquidating a partnership, you can watch our on-demand webinar. NATP members can attend for free, depending on membership level! If you’re not an NATP member and want to learn more, join our completely free 30-day trial at natptax.com/explore.
About National Association of Tax ProfessionalsThe National Association of Tax Professionals (NATP) is the largest association dedicated to equipping tax professionals with the resources, connections and education they need to provide the highest level of service to their clients. NATP is comprised of over 23,000 leading tax professionals who believe in a superior standard of ethics and exemplify professional excellence. Members rely on NATP to deliver professional connections, content expertise and advocacy that provides them with the support they need to best serve their clients. The organization welcomes all tax professionals in their quest to continually meet the needs of the public, no matter where they are in their careers.
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Information included in this article is accurate as of the publish date. This post is not reflective of tax law changes or IRS guidance that may have occurred after the date of publishing. All taxpayer circumstances are different, and NATP recommends contacting research services if you have specific questions about your clients’ tax situations.