Schenck:
Partners are taxed on the net profit each year but (generally) not the distributions ( as long as they don't take out more than they made in profits over the years - and some other reasons).
Simple Example:
Partnership makes $10,000 net profit each year, but partners do not take a distribution for 10 years.
Each year, the partners pay tax on the $10,000 profit.
So, after 10 years when they take out the $100,000, is it taxable?
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No! They already paid the tax on it as it was earned each year. They are just moving equity around. It's theirs for the taking. As already indicated, it is reported on the K1 and K1 basis worksheet but it wont make it to the income column on their 1040.
Be sure to track the amount of money moving in and out of the partnership - even if a balance sheet is not required. I strongly recommend doing the balance sheet and capital account schedules even if not required.
If you have no one to mentor you and you are not familiar with this, consider referring the client to a trusted local practitioner. Trade him or her the partnership return referrals for family return referrals.
And/or take a course on entity returns.
And be sure to charge enough for the partnership tax return.