Video: Effect of Income and Withdrawals on Partner Basis

In this lesson, explore the essential tax concepts of partner basis as Nick Palazzolo, CPA, breaks down how income and withdrawals affect a partner's investment in a partnership. He clarifies the effects of both taxable income and non-taxable withdrawals on the partner's capital account and tax basis. Nick illustrates these principles using practical examples, such as how a partner's tax basis increases with their share of undistributed partnership income but decreases with money received as withdrawals. Emphasizing the significance of understanding basis, Nick explains how it influences a partner's taxable gain or loss on the sale or liquidation of their partnership interest, as well as the deduction of partnership losses. This foundational knowledge is not only pivotal for the exam but also for grasping the broader financial implications in partnership dealings.