I owned 20% of my business, and my partner owned 80% of the business. On January 1st, 2015 I officially acquired his 80% of the company. The buy/sell agreement included my partner taking ALL retained earnings as of 12/31/2014 AS WELL AS any AR that was accrued in 2014, but cash received in 2015 (based on our terms ranging from NET 30 to NET 60 with our clients).
So he collected the cash received on all invoices that were generated in 2014, but received in 2015.
We are an LLC taxed as an S-Corp.
So, our books (on a cash basis) show that we collected (for example) $200,000 cash in January/February of 2015 that was actually accrued in 2014 when he was still 80% owner, which he took out of our retained earningswhen the payments were received. All AR accrued as of 1/1/2015 stayed with the company with me as 100% owner.
Now, taxes are calculated on a cash basis. So, is there a way to off-set the $200,000 cash that was paid to the former member in 2015 (as part of the buy/sell agreement) so that I am not responsible for the taxes for that income (since it was paid out to him and not retained by our company)?
It doesn't seem correct that I should be responsible for the taxes on that cash that was paid in 2015 but accrued in 2014 since it was technically not retained by the company in 2015.
So is there an off-setting expense that can be used to compensate for the $200,000 accrued in 2014 that he collected in 2015, but that shows on our books as 2015 income?
Thanks in advance!!