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Old 03-01-2017, 02:55 PM
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Join Date: Mar 2017
Posts: 2
Partnership guaranteed payments: SE tax?

My two-member LLC paid guaranteed payments for the first time this year, and I'm trying to work them into both the partnership and partner returns. Here's how I'm figuring them now (in a simplified example).

I would expect self-employment tax to apply to the $20,000 of guaranteed payments, but those go through Schedule E, and the only self-employment tax applies to the $800 partner's share of ordinary business income. What am I doing wrong?

Partnership structure:
  • One active member at 80%
  • One passive member at 20%

Partnership Form 1065, P. 1:
  • Income, line 8, Total income: $22,000
  • Deductions, line 10, Guaranteed payments to partners: $20,000
  • Deductions, line 21, Total deductions: $21,000 (includes $1,000 other deductions)
  • Deductions, line 22, Ordinary business income: $1,000

Partnership Form 1065 Schedule K, P. 4:
  • Income, line 1, Ordinary business income: $1,000
  • Income, line 4, Guaranteed payments: $20,000
  • Self-employment, line 14a, Net earnings from self-employment: $800 ($1k * 80%)
  • Self-employment, line 14c, Gross nonfarm income: $17,600 ($22k * 80%)

Partner Form 1065 Schedule K-1:
  • Part III, line 1, Ordinary business income (loss): $800
  • Part III, line 4, Guaranteed payments: $20,000
  • Part III, line 14, Self-employment earnings, code A Net earnings from self-employment: $800
  • Part III, line 14, Self-employment earnings, code C Gross nonfarm income: $17,600

Partner Form 1040 Schedule E, P. 2:
  • Part II, line 28j, Nonpassive income from Schedule K-1: $20,800
  • Part V, line 41, Total income, Enter the result here and on Form 1040, line 17: $20,800

Partner Form 1040 Schedule SE, P. 2:
  • Part I, line 2, Schedule K-1 (Form 1065), box 14, code A: $800
  • Part I, line 4a, multiply by 92.35%: $739
  • Part I, line 10, multiply by 12.4%: $92
  • Part I, line 11, multiply by 2.9%: $21
  • Part I, line 12, Self-employment tax, add 10 & 11, enter on 1040 l. 57: $113
  • Part I, line 13, Deduction for 1/2 SE tax, multiply by 50%, enter on 1040 l. 27: $57

Partner Form 1040, Pp. 1-2:
  • Income, line 17, partnerships, attach sched. E: $20,800
  • Income, line 22, total income: $20,800
  • Adjusted gross income, line 27, Deductible part of SE tax, attach sched SE: $57
  • Other taxes, line 57, SE tax, attach sched SE: $113



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Old 03-02-2017, 04:42 AM
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Join Date: Oct 2010
Posts: 4,620
Quote:
Originally Posted by zultron View Post
My two-member LLC paid guaranteed payments for the first time this year, and I'm trying to work them into both the partnership and partner returns. Here's how I'm figuring them now (in a simplified example).

I would expect self-employment tax to apply to the $20,000 of guaranteed payments, but those go through Schedule E, and the only self-employment tax applies to the $800 partner's share of ordinary business income. What am I doing wrong?

Partnership structure:
  • One active member at 80%
  • One passive member at 20%

Partnership Form 1065, P. 1:
  • Income, line 8, Total income: $22,000
  • Deductions, line 10, Guaranteed payments to partners: $20,000
  • Deductions, line 21, Total deductions: $21,000 (includes $1,000 other deductions)
  • Deductions, line 22, Ordinary business income: $1,000

Partnership Form 1065 Schedule K, P. 4:
  • Income, line 1, Ordinary business income: $1,000
  • Income, line 4, Guaranteed payments: $20,000
  • Self-employment, line 14a, Net earnings from self-employment: $800 ($1k * 80%)
  • Self-employment, line 14c, Gross nonfarm income: $17,600 ($22k * 80%)

Partner Form 1065 Schedule K-1:
  • Part III, line 1, Ordinary business income (loss): $800
  • Part III, line 4, Guaranteed payments: $20,000
  • Part III, line 14, Self-employment earnings, code A Net earnings from self-employment: $800
  • Part III, line 14, Self-employment earnings, code C Gross nonfarm income: $17,600

Partner Form 1040 Schedule E, P. 2:
  • Part II, line 28j, Nonpassive income from Schedule K-1: $20,800
  • Part V, line 41, Total income, Enter the result here and on Form 1040, line 17: $20,800

Partner Form 1040 Schedule SE, P. 2:
  • Part I, line 2, Schedule K-1 (Form 1065), box 14, code A: $800
  • Part I, line 4a, multiply by 92.35%: $739
  • Part I, line 10, multiply by 12.4%: $92
  • Part I, line 11, multiply by 2.9%: $21
  • Part I, line 12, Self-employment tax, add 10 & 11, enter on 1040 l. 57: $113
  • Part I, line 13, Deduction for 1/2 SE tax, multiply by 50%, enter on 1040 l. 27: $57

Partner Form 1040, Pp. 1-2:
  • Income, line 17, partnerships, attach sched. E: $20,800
  • Income, line 22, total income: $20,800
  • Adjusted gross income, line 27, Deductible part of SE tax, attach sched SE: $57
  • Other taxes, line 57, SE tax, attach sched SE: $113
I do not check or file 1065 /forms here; so You need to contact an Enrolled Agent or a CPA doing taxes in yoru local area for fed/state returns



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Old 03-22-2017, 11:40 AM
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Join Date: Mar 2017
Posts: 2
Quote:
Originally Posted by Wnhough View Post
I do not check or file 1065 /forms here; so You need to contact an Enrolled Agent or a CPA doing taxes in yoru local area for fed/state returns
No problem, it's a difficult question. The first (and second, and...) time through, I missed where the instructions for Schedule K-1 say to include guaranteed payments on line 14, code A.

That flows through into the 1040 Schedule SE, and now the FICA tax is what I'd expect.

Thank you!



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