How much tax is paid by partners on K1? Is it based on the distribution number or is it a flat rate?

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It’s based on federal and tax laws for partnership taxes. So depends on how much you make and in which states your firm operates, and how your firm handles that.

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It’s highly complex. You need a tax accountant with experience with partnerships, or just take the advice and service from your Firm.

You do pay a lot of tax. There are a lot of deductions. In NY, CA PTET and PET a is a big deal. It is essentially personal income tax, your effective tax rate is in the low 30’s if you manage things well. It’s just complex to claim anything.

Anyone being told to pay 57% has a tax accountant who is an idiot. Even if they live 100% in Manhattan the highest marginal rate should be in the low 40’s on the last dollar you earn. State taxes can be deducted (PTET)

It is based on the earnings, and there may be a deferred tax liability, as distributions often exceed taxable income. Some firms have ways to use voluntary capital to defer income and save tax free for retirement.

No easy answer. Last few years my marginal tax rate on earned income has been 33%, all taxes all income. I’m 20 years in, doing fine.

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This is so true. PET is huge for CA, part of the benefit of a K1 vs W2

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It’s taxed at their personal income tax rate. Whatever shows up in Boxes 1 to 20 or whatever it is these days. It’s tied to the earnings of the partnership not the cash distribution. However, most partnerships will make a tax distribution (ie cash to cover taxes) so they aren’t stuck with dry income.

If I’m doing partnership tax modeling, I usually use around a 54% tax rate (37% fed individual rate plus New York State / New York City local taxes to get a sense of the high end). That’s not taking into account any items taxed and different rates like LTCG.

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The max usually

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