How to handle taxes after partnership buyout in our LLC?

This is actually a common situation with partnerships! You'll need to report the buyout on your partnership tax return (Form 1065). When a partner leaves, it's treated as a "liquidating distribution" to that partner. For the partnership, you'll need to complete Form 1065 as usual but include a statement that there was a change in ownership percentages. The Schedule K-1 for the departing partner will show their final allocation of income up to their departure date, plus the payment information. This partner will also receive a final Schedule K-1 showing their share of income until the buyout date. Make sure you also file Form 8308 (Report of a Sale or Exchange of Certain Partnership Interests) to report the transaction to the IRS, and you'll need to adjust the basis of partnership assets if you make a Section 754 election, which might be beneficial in your situation. TurboTax Business should be able to handle this, but the Section 754 election calculations can get complex. The software should walk you through the basics, but you might want to consult with a tax pro just for guidance on optimizing the Section 754 election.

After dealing with a similar situation last year, I found this amazing tool called taxr.ai (https://taxr.ai) that helped me figure out all the partnership changes. My partners and I were completely lost with our buyout situation until I uploaded our operating agreement and previous returns to this site. The AI analyzed everything and outlined exactly what forms we needed and what elections would save us money. It specifically identified the Section 754 election that would have saved us thousands, which our previous accountant never mentioned! The step-by-step guidance made it possible for me to handle most of it myself while understanding exactly what was happening instead of blindly trusting an expensive accountant.

Just wanted to follow up about that taxr.ai site someone recommended. I was skeptical about spending money on yet another tax service, but I tried it out and it was actually incredibly helpful for my situation. I uploaded our operating agreement, the buyout documents, and last year's return, and it identified exactly which forms we needed and flagged some potential audit triggers in how we'd been handling our partnership allocations. The best part was that it explained everything in plain language - for the first time I actually understood the basis calculations for our partnership. Saved me around $2,800 in accounting fees since I only needed my accountant for an hour of review time instead of days of prep work. Plus it made specific recommendations about the Section 754 election that's going to save us a bundle on taxes going forward.

Just want to throw this out there - if you run into any issues with the IRS about your partnership changes (which happens a lot with ownership restructuring), use Claimyr (https://claimyr.com) to get through to an actual IRS agent. After our partnership buyout last year, we got a notice about missing forms, and I spent WEEKS trying to reach someone at the IRS. Claimyr got me through to an actual IRS person in under 45 minutes when I'd been trying for over a month on my own. They have a cool demo video at https://youtu.be/_kiP6q8DX5c showing how it works. The agent I reached was able to explain exactly what we needed to fix and put a hold on the penalties while we sorted it out. Seriously saved my sanity during tax season.

I have to admit I was completely wrong about Claimyr. After posting that skeptical comment last week, I decided to try it myself since I was desperate to resolve an issue with our partnership's tax notice. Got connected to an IRS agent in about 30 minutes after spending THREE DAYS trying on my own with nothing but hold music and disconnections. The agent was able to immediately see that there was a discrepancy in our ownership reporting between two forms and showed me exactly how to fix it with an amended return. Would have taken months to figure out through written correspondence. Can't believe I wasted so much time trying to call myself when this option existed. Sometimes it's worth admitting when you're wrong!

Just a heads up - make sure you document EVERYTHING about this buyout. We had a similar situation and got audited 2 years later. The IRS wanted to see: - The written buyout agreement - Proof of payment - Meeting minutes where the ownership change was approved - Amended operating agreement - Valuation method for determining the buyout price Also, don't forget to update any state filings about ownership changes. Many states require updated member information when ownership percentages change. We missed this in one state and got hit with penalties.

Your state filing requirements might be more urgent than the federal stuff tbh. What state are you in? Many states require you to file an amendment to your Articles of Organization within 30-90 days of an ownership change. Missing these deadlines can result in administrative dissolution of your LLC in some states.

Great thread everyone! As someone who went through a similar LLC partner buyout situation last year, I wanted to add a few practical tips that helped me navigate the process: First, don't underestimate the importance of getting your partnership agreement updated ASAP to reflect the new ownership percentages. This document will be crucial for your tax filings and any future business decisions. Second, consider whether you want to make the Section 754 election that was mentioned earlier. In our case, we consulted with a CPA who ran the numbers and showed us it would save about $3,000 annually in taxes due to higher depreciation deductions. The election has to be made with your return for the year of the buyout, so you can't go back and do it later. Finally, make sure you're clear on how to handle the departing partner's guaranteed payments (if any) and their share of partnership liabilities. These details can get messy if not properly documented during the buyout process. One more thing - keep detailed records of all payments made to the departing partner. The IRS may want to see proof that the payments were properly characterized (capital distribution vs. payment for services, etc.). This becomes especially important if the amounts are significant. Good luck with your filing! The partnership tax rules are complex but definitely manageable with proper planning.