First-time filing for partnership LLC, need guidance on tax requirements

Thank you for the detailed response! Just to make sure I understand - we need to file by March 15th, but if we haven't distributed any profits, do we still need to issue K-1s to ourselves? And how exactly do we show that no money was taken out as distributions? Also, if we've been reimbursing each other instead of treating these as capital contributions, did we mess up? Does that mean we need to reclassify all those transactions now?

Yes, you still need to issue K-1s even with no distributions. The K-1 reports each partner's share of profit/loss, not just distributions. Your profit gets allocated according to your partnership agreement percentages. The fact that you retained earnings in the business doesn't change the tax reporting - each partner still pays tax on their allocated share. For the reimbursements, ideally these should have been handled through the partnership, with the business directly reimbursing partners for expenses paid on its behalf. However, it's fixable. You'll need to reclassify these transactions in your accounting records as partner contributions and partnership expenses. Keep your electronic payment records as documentation. Your tax preparer can help structure this correctly when preparing your Form 1065.

Does that service actually handle partnership returns specifically? I've used other tax software that claims to do business returns but then doesn't understand the whole pass-through entity stuff correctly. Did it help with figuring out the basis calculations too? That's where I got totally lost last year.

I'm skeptical about using AI for tax stuff, especially for something complicated like partnerships. How does it handle state-specific LLC requirements? My state has some weird rules about filing fees and minimum taxes that most software misses.

It specifically handles partnership returns - that's actually why I chose it. It understands the pass-through nature of partnerships and properly allocates items to K-1s. It definitely helped with basis calculations by tracking contributions, distributions, and allocated income/losses properly throughout the year. For state-specific requirements, it has a comprehensive database of state filing rules. I'm in California which has that $800 minimum tax regardless of profit/loss, and it flagged that requirement immediately. It also identified which expenses were deductible at the federal level but might be limited for state purposes. The analysis includes both federal and state-specific guidance.

How does that service actually work? I don't understand how they can get you through to the IRS faster than just calling directly. Sounds too good to be true.

Yeah right. There's no way to "skip the line" with the IRS. I've worked in tax preparation for years and this sounds like a scam. The IRS prioritizes calls based on their own internal systems. No third party can magically get you to the front of the queue.

It uses technology that continually redials and navigates the IRS phone tree until it gets through to an agent. When an agent is reached, it calls you and connects you immediately. It's not "skipping the line" - it's just automating the tedious process of calling, getting disconnected, and calling again. I was skeptical too, but it definitely works. The system handles all the waiting and redials while you go about your day instead of being stuck with your phone on speaker for hours. When I used it, I got a call back in about 20 minutes letting me know an IRS agent was on the line ready to talk to me. Saved me literally hours of frustration.

We do have an operating agreement, but it's pretty basic and just says we split everything equally. Is that sufficient? Also, what exactly is "substantial economic effect" and how do we know if our allocations meet that requirement?

Your basic agreement splitting everything equally is actually the simplest approach for IRS purposes, so that's fine. "Substantial economic effect" is the IRS's way of ensuring that tax allocations reflect economic reality. Basically, tax benefits should go to the partner who actually bears the economic burden or receives the economic benefit. For example, if your agreement said Partner A gets 90% of the tax losses but only 10% of the actual profits when you sell or liquidate the business, the IRS would likely reject that as lacking substantial economic effect. The partner getting the tax benefits must also bear the economic consequences. When you allocate everything equally, this usually isn't an issue unless you have complex arrangements like guaranteed payments or preferred returns.

Yes, partnership income can qualify for the QBI deduction (Section 199A). The partnership doesn't take the deduction itself - it's calculated and claimed on each partner's individual return based on their share of qualified business income. The partnership will provide information on each partner's K-1 about qualified business income, W-2 wages paid by the business, and qualified property. Partners then use this information on Form 8995 or 8995-A on their personal returns to calculate their deduction. The deduction can be up to 20% of QBI, subject to limitations based on taxable income, business type, and W-2 wages/qualified property.