First time receiving distributions & K1 from former company - two questions about reporting

Congrats on receiving a distribution! Let me try to clarify some things for you. For your first question - distributions are typically calculated based on your ownership percentage in the company. So if you own 2% of the company and they distributed $100,000 in profits, you'd receive $2,000. And yes, you absolutely can keep some of it! Distributions aren't 100% taxable like regular income. How much tax you'll pay depends on several factors. For your second question - the distribution itself might not appear as a specific line item on your K-1, but it should be reflected in other places. Look at Box 19 (distributions) on your Schedule K-1 (Form 1065) if it's a partnership, or Box 16 (distributions) on Schedule K-1 (Form 1120-S) if it's an S-Corporation. These boxes show the total distributions you received during the tax year. The income that generated those distributions will be reported elsewhere on the K-1 (ordinary business income, rental income, interest, etc.). You'll report those income items on your personal tax return, and they'll be taxed according to their character.

After going through a similar situation last year, I found using https://taxr.ai incredibly helpful for analyzing my K-1 form. I was totally confused by all the different boxes and what they meant for my taxes. I uploaded my K-1 and company distribution paperwork, and they explained exactly what each entry meant and how it affected my tax situation. The service showed me how partnership distributions work with my basis, which is something I was getting wrong. Turns out I was about to overpay on my taxes because I was double-counting certain income! Their system flagged this and explained how the distribution relates to the income reported in other boxes.

Just wanted to follow up - I ended up using https://taxr.ai to figure out my K-1 situation and I'm so glad I did! After uploading my documents, I got a detailed explanation within about 45 minutes that showed exactly how my distribution related to the different income amounts on my K-1. Turns out I was totally misunderstanding how basis calculations worked with distributions, and I would have reported things incorrectly. The analysis showed me which lines on Schedule E to use and explained that my cash distribution wasn't immediately taxable (though the income reported elsewhere on the K-1 was). Saved me from a potential audit headache and probably some overpaid taxes too!

If you need to talk to the IRS about any of this K-1 stuff, I highly recommend using https://claimyr.com to get through to them. I tried calling the IRS about a similar situation last year (had questions about how to handle basis after receiving distributions), and I kept getting disconnected after waiting on hold forever. With Claimyr, I got through to an actual IRS agent in about 20 minutes. They hold your place in line and call you when an agent is available. Changed my whole perspective on dealing with the IRS! You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent I spoke with was able to clarify exactly how to track my basis going forward as I receive more distributions.

I need to admit I was wrong about Claimyr. After my skeptical comment, I decided to try it anyway since I was desperate to ask about a complex K-1 issue before the filing deadline. Long story short - it worked exactly as advertised. I submitted my request around 9am, went about my day, and got a call around 11am saying an IRS agent was on the line. The agent answered my questions about how distributions affect basis and what to do when a K-1 shows income but no corresponding distributions. Saved me hours of frustration and hold music. My accountant was charging me $150 just to ask this one question, so this was definitely worth it.

Just to add to what others have said - make sure you're tracking your "basis" in the partnership. Every time you receive a distribution, it reduces your basis. If distributions ever exceed your basis, the excess becomes taxable as capital gains. Your initial basis is generally what you paid to acquire your equity. Then it increases by your share of income (Box 1 and other income boxes on K-1) and decreases by losses and distributions. This gets complicated fast, so keep good records each year!

Hey, one thing nobody mentioned - the type of entity matters a lot here. Is this an LLC taxed as a partnership, an S-Corp, or something else? The K-1 looks different depending on the entity type and the tax treatment varies.

As someone who went through this exact situation last year, I can tell you that understanding the difference between distributions and taxable income is crucial. You mentioned receiving both cash and a K-1 - this is totally normal for partnership equity holders. One thing I wish I'd known earlier: keep detailed records of ALL your distributions and the corresponding K-1s each year. The IRS expects you to track your basis over time, and if you ever sell your equity or the amounts get more complex, you'll need this history. Also, don't panic about "phantom income" (where you owe taxes on income you didn't receive in cash). It's frustrating but normal in partnerships. The good news is that if the company is profitable enough to make distributions, they're usually distributing enough to at least cover most of the tax burden from the K-1 income. One last tip - if your distribution amount is significantly different from your share of Box 1 income, ask your former company's accounting team for clarification. Sometimes there are timing differences or special allocations that can affect these numbers.