Q: For cash flow purposes to calculate a DSCR, should you subtract cash paid for income taxes for a limited partnership?
A: A company reporting as a limited partnership or limited liability company (LLC) does not directly pay income taxes on its taxable income. Like any pass-through entity, which both are, they passe the income tax obligation to their partners or members. The pass-through entity then provides distributions to the partners or members, which they use to pay their personal income tax obligations on taxable partnership income. Cash paid for income taxes is included in distributions. Any amount of distributions in excess of the income tax obligation represents compensation for the partners or members.
Note that distributions are included in the Owner Payout for D & J Installation Contractors where Owner Payout is the sum of distributions and loans to partners.
Course overview: Debt Capacity and Cash Flow