Schedule K-1

[johnkennedy32]

According to my boss, the company I work for (and have a 5% stake as a partner in) had the option to file my taxes on my behalf. He claims that I should not have any liability from this and sent me a Schedule K-1 after I already filed form 1099-NEC.

Do I have to file an amended return? He already filed this K-1 form on my behalf and claims I should not have any liability, but also claims that I should file an amended return. When I fill out the information from the K-1 form he filed online, it claims I owe around $8,000 more, even though I already paid around $9,700 in estimated tax throughout 2022 and only have $33,562 reported on my guaranteed payments. Not sure what I am doing and if it is wrong (I'm 23).

[Anonymous_]

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@johnkennedy32 wrote:

According to my boss, the company I work for (and have a 5% stake as a partner in)....

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You might want to get clarification from your boss or the PR (Partnership Representative), but if you are a partner, you should be receiving a K-1 (1065) each tax year (which you clearly need to report on your 1040).

[Opus 17]

Assuming the company is a multi-member LLC, partnership, or S-corporation, the company issues a K-1 statement to each co-owner listing their share of income, expenses and other items.  You report the K-1 on your personal tax return along with any other wages, personal deductions (like gifts to charity), dependents, or personal credits.  

Whether or not you should also get a 1099-NEC for your participation in the company activities depends on how the business does their accounting and the terms of the partnership.  For example, if you only have a 10% ownership stake but you have more than 10% participating effort, there would have to be some way of rewarding that effort, either by making you a W-2 employee, or by issuing a 1099-NEC.  (If it is an S-corp, I believe you must be a w-2 employee if you perform work for the business.)  This way, a passive owner receives a share of the profits but an owner who materially participates gets either a larger share of the profits, or gets wages plus profit participation.

All of which is to say, it is possible that you would get both a K-1 and some kind of compensation for work performed, but that compensation might have to be as a W-2 employee rather than a contractor, and the whole situation needs to be reviewed by a CPA to make sure both you and the business are doing things properly. 

[Anonymous_]

It should be highlighted, at this point, that general partners in a partnership are considered to be self-employed and not employees of the partnership (i.e., they would not receive a W-2 from the partnership).

[Opus 17]

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@Anonymous_ wrote:

It should be highlighted, at this point, that general partners in a partnership are considered to be self-employed and not employees of the partnership (i.e., they would not receive a W-2 from the partnership).

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Right, but

a. if this is an S-corp, the taxpayer should be an employee, not a contractor, right?

b. if this is a partnership, and the taxpayer is supposedly a 5% owner but is providing more than 5% material participation, then the ownership percentage needs to be adjusted, rather than paying him/her as a contractor, right?

[Anonymous_]

S corporations are generally required to pay reasonable compensation to shareholders/employees who perform services for the corporation (i.e., W-2 employees).

In a partnership, partners may be compensated for services as guaranteed payments and may also be compensated in that manner for additional capital invested, etc.

There are not quite myriad possibilities here, but there are quite a few scenarios where individuals in certain business entities may be compensated using various methods with various designations. Hence, the suggestion that this user contact the PR for further information and clarification.