Which is true? A) A cash distribution of an LLC’s income to its members is generally...
Which is true?
A) A cash distribution of an LLC’s income to its members is generally tax-free to them and to the LLC.
B) Only cash distributions from a partnership are taxable to partners.
C) Cash distributions exceeding a partner's basis in the partnership interest are taxable to the partner and to the partnership as ordinary income.
D) All are true.
Homework Answers
Option B is Correct,
Reason: The portion of profit distributed to the partners by the partnership firm will be taxable to partners and the remaining undistributed profits will be taxable to the partnership firm at the applicable rates.
Option A is Incorrect,
Reason: All the profits and losses of LLC pass through the business of LLC members. they report this information on their personal tax returns. The LLC itself does not pay federal income taxes but some states charge LLC itself a tax.
Option C is Incorrect,
Reason: If any distribution exceeds the partners basis in the partnership interest are taxable to the partner as captial gain and not taxable to partnership firm
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