Jump to content
ATX Community

Sub-S Received K-1 from an LLC Investment


G2R
 Share

Recommended Posts

My client's company (Sub-S) invested in another company (LLC, taxed as corp) in 2020.  For 2020, a K-1 was issued from the LLC to the Sub-S for the 2020 profits, however dividends were not issued until 2021. 

Am I correct that the 1120S for 2020 will not show any tax implications, but in 2021, the Sub-S will show dividend income to my client on his 1120S K-1?  

Link to comment
Share on other sites

I find the question a little confusing.  If I am following, the sub-s owns the LLC.  The LLC has elected to be taxed as a corporation.  I am assuming it  is taxed as an s-corporation since a k1 was issued.  In my experience, most owners of entities taxed as s-corps pay taxes on the amount reported on the k-1, and any amounts received are usually distributions rather than dividends.  If they are dividends, they should be reported on a 1099-DIV and taxed as dividends.  If they are distributions, they may not be taxable at all since tax on the profits earned was paid based on the k-1 at the time the profit was earned by  the LLC. 

  • Like 2
Link to comment
Share on other sites

1 hour ago, Lion EA said:

I don't know, but doesn't the S-corporation report on its 2020 1120 all the activity reported on the LLC's 2020 K-1 to its parent company?

Thank you for the reply @Lion EA  & @Gail in Virginia -- Originally I was told the LLC was a C-Corp and I'd never seen an S-corp own a C-corp so I was curious how reporting that information would work. I finally got a copy of the actual K-1, and it's an LLC taxed as a partnership, NOT a C-Corp like they said.  🙄  

But for future reference, if the S-Corp DID own a portion of a C-Corp, I assume the dividends would simply be reported through the 1120S K-1 right?

Link to comment
Share on other sites

If an S-Corp owns a C-Corp, the C-Corp would report dividends on a Form 1099-DIV that the C-Corp issues to the S-Corp. Then the S-Corp issues From K-1 to the shareholders. (This is a more complex transaction than my corporate clients have! I have only a few corporations.)

  • Thanks 1
Link to comment
Share on other sites

20 hours ago, G2R said:

Thank you for the reply @Lion EA  & @Gail in Virginia -- Originally I was told the LLC was a C-Corp and I'd never seen an S-corp own a C-corp so I was curious how reporting that information would work. I finally got a copy of the actual K-1, and it's an LLC taxed as a partnership, NOT a C-Corp like they said.  🙄  

But for future reference, if the S-Corp DID own a portion of a C-Corp, I assume the dividends would simply be reported through the 1120S K-1 right?

If an S-Corp owns a C-Corp, and the C-corp pays dividends out of retained earnings, then the C-Corp would issue a 1099-Div to the S-Corp, which would in turn issue a K-1 to the S-corp shareholders reflecting those dividends.  I think that is what you were saying.

  • Like 1
  • Thanks 1
Link to comment
Share on other sites

6 minutes ago, Gail in Virginia said:

If an S-Corp owns a C-Corp, and the C-corp pays dividends out of retained earnings, then the C-Corp would issue a 1099-Div to the S-Corp, which would in turn issue a K-1 to the S-corp shareholders reflecting those dividends.  I think that is what you were saying.

Yes Gail, that's exactly what I was saying.  Thanks for confirming it too!

Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
 Share

  • Recently Browsing   0 members

    No registered users viewing this page.

×
×
  • Create New...