593 withholding for CA LLC - need to flow to partners

[krishill]

My California LLC (partnership) client sold property in 2023 and the escrow withheld $63K on the sale. How do I report this and how do I get the credit for the withholding out to the LLC members? 

[TaxPandaCPA]

For a California LLC (partnership) that sold property in 2023 and had escrow withholdings, follow these steps to report the withholding and allocate the credit to the LLC members:

1. Reporting the Withholding on the LLC’s Tax Return:
Form 568 (Limited Liability Company Return of Income):

Report the sale of property on Form 568, which is the tax return for California LLCs. You will include the details of the sale and any related withholdings.
Schedule K-1 (565 or 568):

Complete Schedule K-1 for each member of the LLC. Include the member’s share of the sale and the withholding.

2. Reporting the Withholding on California Form 593:
Form 593 (Real Estate Withholding Tax Statement):

The escrow company should have provided you with Form 593, which documents the amount of withholding. Ensure this form is correctly filled out and retained for your records.
California Form 593 (Real Estate Withholding Tax Statement):

The LLC or its tax preparer needs to file Form 593 with the California Franchise Tax Board (FTB) to report the withholding. The form provides details on the amount withheld and other pertinent information.

3. Allocating the Credit to LLC Members:
Form 593:

Use Form 593 to allocate the withholding credit among the LLC members. This form should be provided to each member, showing their share of the withholding.
Schedule K-1 (Form 568):

The credit for withholding should be reflected on the Schedule K-1 issued to each member. This credit reduces the member's overall tax liability.
Member’s Individual Tax Return:

Each LLC member will report their share of the withholding credit on their personal California income tax return. They will use the information provided on Form 593 and Schedule K-1.

4. Filing and Payment:
File Form 593:

Submit Form 593 to the California FTB. This form provides the FTB with information about the withholding and helps ensure that the credit is properly applied.
Include Withholding Details:

Ensure that the withholding credit is included in the LLC's and members' tax filings. This will help reduce the LLC’s and members’ tax liabilities accordingly.

By following these steps, you can properly report the withholding and allocate the credit to the LLC members, ensuring that they receive the appropriate tax benefit. If you have any specific questions or need detailed instructions, consulting a tax professional familiar with California tax laws may be helpful.