Partnership topics: Year End Chores for Partnerships
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Partnership Tax Preparation Checklist
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Organizers
Year End Chores for Partnerships
End of year reimbursements and health insurance
- Reimbursements: Reimburse partners for personally paid travel, auto and other business expenses before Dec 31. You can also reimburse for prorated home office expenses if appropriate for your situation. All reimbursement arrangements should be documented. This documentation is called an "accountable plan".
- Health Insurance for partners: In general partnerships, health insurance paid (or reimbursed) by the company will need to be included as a guaranteed payment to the actively working partners on their K-1. In most cases, Medicare paid by the partner and spouse qualifies. This will probably not apply if you have a limited partnerships or are passive partners.
Close the Books
** This section is intended for your bookkeeper. Please forward it to that person **
- Prior year asset depreciation is usually entered in April after the annual taxes are filed. It's good practice to check that this was not forgotten. The current depreciation data can be found in the depreciation schedule usually located toward the back of your prior year tax return.
- Clean up "Loans" that were really distributions. Ensure that true loans were documented with signed notes.
- Reconcile the bank and liability accounts and confirm books really match the bank.
- Prepare 1099-NEC and 1099-MISC for outside contractors paid more than $600 over the year.
Contact us by January 10 if you want us to create, mail and file these forms.
The balance sheet equity section has several temporary accounts that need to be closed out at the end of the year so they can start fresh at zero for the new year. To do so, you'll need to make a few quick journal entries, all dated January 1 of the upcoming new year. You can confirm that you did this correctly if you change the date on your balance sheet report from 12/31 to 1/1.
- Close out "Net Income" to "Retained Earnings: Debit Net Income so it becomes zero, and credit retained earnings by the same amount. (The default installation of Quickbooks should make this entry automatically).
- "Contributions" or "Owner Contributions": You'll do the same: debit "Contributions" to bring it to zero and credit "Retained Earnings" by the same amount. (Quickbooks does not do this entry automatically)
- "Distributions" or "Draws": In this case, since distributions is a credit account, you will Credit "Distributions" and debit "Retained Earnings". (Again, Quickbooks does not do this automatically)
- Video Guide These excellent short videos by Candus Kampfer will show the entries to make.
Partnership Tax Preparation Paperwork checklist
If you have all your year end tasks square away, you'll want to start working on collecting your paperwork so we can prepare your annual tax return. We can directly access most client's Quickbooks accounts to download the reports we'll need to complete your tax return. If this is the case, you probably need to do nothing more than to ask your bookkeeper to do a year end reconcile and to let me know when everything is ready to go.
Click here for our Tax Preparation Checklist
- IRS Deadline: Partnership returns are due March 15.
- Our Deadline: We will need your paperwork in Early February to avoid the need for filing an extension.
(Paperwork for your personal 1040 return can come later.)
Late Penalty: The late filing penalty without an extension is $220 per month, per partner.
Links / References
Closing Entries
Overview of closing entries from Quickbooks
Cliff Notes on bookkeeping closing entries
Bookkeeping Closing Entries
