This is Linda Keith, a CPA, providing a tip from a presentation I'm giving at the Better Banking Summit on October 15 to 18. The topic is untangling the web of pass-through entities. - So, how do you determine how much a shareholder in an S corporation, a partner in a partnership, or an LLC owner takes from their pass-through? Well, first of all, you're on the right track. - Taxable income is not the same as cash flow. The number on the back of the 1040 Schedule II is taxable income, but it doesn't represent cash flow. - If it's an S corporation filing using Form 1120-S, you should look for distributions on the K-1 in addition to the wages already reported on the 1040. You might also need to account for repayment of loans made by the shareholder to the company (line 16 code D or E). - On the other hand, if it's a partnership or LLC filing using Form 1065, you should still look at the K-1. The formula for determining cash flow is distributions (line 19, code A) plus guaranteed payments (line 4) minus capital contributed (line L). - In our 30-45 minute presentation at the Better Banking Summit, we will cover a couple of other choices. One option is to determine what the company can actually afford to pay the owner, which is more appropriate for higher percentage owners. The other option is if you're a business lender combining both the company and the owner's global cash flow. - Make sure to catch the full presentation at betterbankingsummit.com. The summit is live from October 15 to 18, and recordings will be available afterwards. Also, check out the free resources tab for three favorite worksheets, including an Excel-based cash flow analysis that can be used for any tax returns. Visit betterbankingsummit.com...
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Video instructions and help with filling out and completing Are Form 1120 Schedule M 3 Consolidating
