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Old 10-09-2015, 09:46 AM
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LLC Partner report subcontract expense

I am a 1/3 partner in a Software Consulting LLC. I received 120K in K1 that was classified as guaranteed payment.

I actually subcontract my share of the work to an outsourced software development company in India for 60K. Where do I report my subcontract expense? I don't know if I can treat the guaranteed payment in my K1 as 1099 and start a Schedule C. And I don't see anywhere I can enter this on Schedule E.

Obviously I don't want my LLC to find out about my subcontract activity. Yet I don't want to pay tax on 120K.

Thanks.



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Old 10-09-2015, 06:09 PM
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I am a 1/3 partner in a Software Consulting LLC. I received 120K in K1 that was classified as guaranteed payment.

I actually subcontract my share of the work to an outsourced software development company in India for 60K. Where do I report my subcontract expense? =====>>UNLESS you are a SMLLC owner, you do not file Sch C of 1040;the LLC passes along its profits and losses to you, a Sch K1 of 1065 showing your self-employment income, guaranteed payments, from the LLC. The good news for the LLC is that guaranteed payments of $120K are deductible by the LLC as business expenses and the net profit of the LLC is reduced by that amount. The bad news foryou, as the member, receiving the guaranteed payment of $120K is that the payment is treated as ordinary income.. Then, you need to report the Guaranteed payments on yoru Sch SE of 1040 as the payments are subject to self-employment tax, in general, as you can see, a self employer CAN claim their subcontract expenses only on Sch C of 1040 line 11. So, you may say that the earnings you received as Guaranteed Payments as a LLC member would not have been possible without incurring business expenses along the way, thus the expenses needs to be deductible. In my opinion, it depends;aslongas the LLC agreement allows for you to claim your expenses, then you can easily claim them. If the agreement does not allow for it, then you cannot. To claim the subcontract expeenes, you need to make up a schedule ,kinda like the 2106 , and attach it to your return. On Sch E, page 2, you put the amount there ,just like you do with your K-1 income/loss and mark it subcontract expenses. You need to net them both and go from there.

I don't know if I can treat the guaranteed payment in my K1 as 1099 and start a Schedule C. And I don't see anywhere I can enter this on Schedule E.========>>As mentioned above; you as a LLC member, can n ever report your guaranteed payments and expense on Sch C of 1040.

Obviously I don't want my LLC to find out about my subcontract activity. Yet I don't want to pay tax on 120K======> As said, it should be spelled out in your partnership agreement. It would not be deducted as SE since you are a partner of the LLC



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