A tax allocation is what happens in your tax world when you’re a partner in a partnership (or a member in an LLC taxed as a partnership). Partnerships themselves generally are not taxed; the tax obligations are “passed through” to its partners. So you might think: well, if the partnership doesn’t give (distribute) any money to me, then as a partner I don’t have to pay the tax. Nice try! To ensure that Uncle Sam gets its pound of flesh, the tax rules will allocate to you, or deem a payment made to you, whether you’re actually paid or not, out of the profit of the LLC (or partnership) based on your percentage interest in the LLC/partnership. That deemed payment is an allocation, and you as a partner will pay tax on that allocation, whether you receive any money or not.