Partnership Allocation differs from ownership

[TaxLwyr53]

I have a partnership where ownership is 50/50 split.  However, they "eat what they kill" so the profit is based on what they bring in.  To complicate matters a bit more, SOME of the expenses are split 50/50 because they are used by the entire firm.  Other expenses are reimbursed by the partnership at the full amount (almost like a draw to the partner that should then be taken on K1 as expense not in partnership??)   

I am confused on how to allocate everything within ProSeries, if this can even be done. Any advice on this would be helpful.   

[dascpa]

In the K-1 worksheet there is a section for ownership %, sharing of profits % and sharing of loss %. The ownership in your situation doesn't change, but the other two do.

If due to the math of your details below that won't work, then there is another Section on the K-1 worksheet for Special Allocations, by $ or by %.  You may end up having to do an Excel worksheet to get to the bottom line for each owner and input it into the Special Allocation Section.  Note, if you do this then on the Schedule K worksheet you have to add the Special Allocation code (A-D or 1-4) so the program knows where to get the override.

[Jesusloveyou]

Hi TaxLwyr53,

It sounds like you have a complex partnership structure, but it can certainly be managed effectively in ProSeries. Since the ownership is 50/50 but the profit-sharing and expenses differ, here's how you can approach this:

1. Ownership vs. Profit Sharing: As you mentioned, the ownership is split 50/50, but the profit-sharing structure depends on what each partner brings in. In ProSeries, you can set the K-1 worksheet to reflect the different profit-sharing arrangements. The ownership remains 50/50, but the "Sharing of Profits %" can be adjusted based on what each partner "earns."

2. Expense Allocation: For shared expenses, you can allocate them 50/50. For expenses that are reimbursed (like a draw), these should not be included in the partnership's expenses but reported on the K-1 form for each partner. This can be treated like a draw, and the expense will be reflected in their K-1 under "Distributions" or "Reimbursed Expenses."

3. ProSeries Setup: In the ProSeries K-1 worksheet, input the 50/50 ownership under "Ownership %," and adjust the "Sharing of Profits %" and "Sharing of Losses %" based on the actual profit distribution between the partners. This ensures the partnership’s profit-sharing reflects the "eat what they kill" model.

Additionally, if you're looking for help with accounting services, we offer expert online accounting solutions for businesses like yours. Whether it’s setting up your partnership allocations, preparing tax returns, or managing financials, our accounting services can make things easier for you. We’ll ensure your books are in order so you can focus on growing your business.

And when you need to celebrate milestones or appreciate clients [Content removed]

Feel free to reach out for assistance with your partnership's accounting needs or for personalized gift ideas.

Best of luck with your partnership setup and accounting!