Tim’s question:
Typically when I see a distribution along with a capital contribution on a K-1 I’ll net the two numbers and input the net number in the personal cash flow. What if there is no distribution but a capital contribution, should the capital contribution be deducted from the personal cash flow?
Linda’s answer:
Hi, Tim!
My first question would be if the capital contribution looks like a one-time or unusual situation. Is it just to cover losses or is it to cover a one-time purchase of an asset? If it is clear it is not typical I might not count it at all for projections.
I am assuming you are talking about <25% owner because with more than 25% I would be looking at the entity return anyway and it would be more clear what is happening in the business with cash flow.
Finally, if you believe the capital contribution is typical, and there is no distribution, you might end up with a negative number flowing into the personal analysis.
Does that answer your question? A pleasure, as always, hearing from you.
Looking to learn more? Take a class with me.
Our modules on global cashflow analysis of tax returns will give you the big picture and help you drill down to recurring cashflow. Each of these modules are 30-minute-or-less.
The training includes
- modules on individual forms and schedules in the 1040, 1065, 1120 and 1120s
- weekly virtual classes for overall topics
- mid-term and final case studies with assistance and review by our senior credit trainers in break-out rooms with no more than three people
- two 200+ page manuals for reference long after the class is done
Click here to check out our online training.
