Form 1065, Schedule L - is it always supposed to balance? Having trouble with partnership tax return

Yes, Schedule L should always balance! A balance sheet by definition needs to have equal total assets and total liabilities + equity. The accounting equation (Assets = Liabilities + Equity) must be maintained. The $13,750 difference you're seeing indicates there's an error somewhere. Here are the most common places to check: - Partner capital accounts on Schedule L should match what's on Schedule K and M-2 - Make sure all retained earnings are properly accounted for - Check if there are any distributions or contributions that weren't recorded properly - Look for assets that might be double-counted or missed - Verify depreciation calculations are correct Don't file with an unbalanced Schedule L - the IRS will likely flag it and potentially trigger an audit. Take the time to track down the discrepancy now.

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Have you checked for unrecorded transactions? Schedule L balancing problems often come from: 1. Missing loan transactions (either new loans or principal paydowns) 2. Partner contributions or distributions not properly recorded 3. Prior year adjustments not carried forward correctly 4. Fixed asset purchases that were expensed instead of capitalized Try reconciling your bank and loan accounts first. If those match your records, then the issue is probably in the equity section.

What tax software are you using? Some programs like Drake or UltraTax have built-in diagnostics that can help identify balance sheet discrepancies.

One thing that often gets overlooked in partnership returns is how partner draws/distributions are recorded. Make sure any money the partners took out during the year is properly reflected in their capital accounts on Schedule L, line 21. Also double-check your beginning balances - if last year's ending balances don't match this year's beginning balances on Schedule L, that could be part of your problem. Sometimes there are prior year adjustments or corrections that need to be accounted for. Since you mentioned you're down to a $3,200 difference after finding that equipment issue, you're getting close! Look for smaller items like: - Accrued expenses that weren't recorded - Prepaid expenses - Any year-end journal entries from the accountant - Bank fees or interest that might not have been entered Don't give up - that remaining difference is definitely findable!

I've dealt with this exact issue before with partnership returns. One thing that saved me was creating a detailed reconciliation worksheet between the accounting software balance sheet and Schedule L. Export your trial balance from the accounting software as of December 31st and compare each line item to what you've entered on Schedule L. Sometimes the issue isn't a missing transaction but rather a classification difference - for example, your software might classify something as "Equipment" while Schedule L requires it to be split between "Depreciable assets" and "Accumulated depreciation." Also check if there are any timing differences. Partnership tax returns are often prepared months after year-end, and sometimes additional transactions get recorded in the accounting system that should have been in the prior year. Look for any January entries that might actually belong in December. Since you're down to $3,200, I'd bet it's something simple like a rounding difference across multiple accounts or a single mid-sized transaction that got recorded in the wrong period. The good news is Schedule L problems are always solvable - the numbers have to be somewhere!

I went through a similar nightmare with a Schedule L that wouldn't balance last year! After hours of frustration, I discovered the issue was with how I was handling the depreciation. Make sure you're not double-counting depreciation anywhere. Check that: - Current year depreciation expense is properly reflected on the income statement - Accumulated depreciation is correctly updated on the balance sheet - Any Section 179 or bonus depreciation is handled consistently between your books and Schedule L Also, since you mentioned this is a construction partnership, watch out for work-in-progress (WIP) inventory. Construction companies often have jobs that span year-end, and the WIP can be tricky to value correctly. If they use percentage-of-completion accounting, make sure the WIP balance on Schedule L matches what's in their job costing system. One more thing - double check any equipment trades or disposals during the year. Construction companies frequently trade in old equipment, and if the gain/loss on disposal wasn't recorded properly, it can throw off both your fixed assets and equity accounts. You're so close with only $3,200 left to find! It's probably just one or two items that got missed or miscategorized.