I have a LLC filing form 1065 where one of the partners receives a guaranteed payment. The instructions for Form 1065 Schedule M-2 line 3 state that this is generally the amount entered on line 9 of schedule M-1. They go on to state if net income includes income from guaranteed payments made to partners, remove such income on line 7.
Turbotax is not entering Schedule M-1 line 9 directly on Schedule M-2 line 3. It is subtracting guaranteed payments from the amount reported on Schedule M-1 line 9 in the smart worksheet. This seems to go against the instructions which state to adjust for guaranteed payments on line 7 - other decreases.
Has anyone else ran into this? Is Turbotax incorrectly calculating Schedule M-2? Should I go with Turbotax or override?
I think this is the correct behavior, but do not do an override at this point.
I will page @Rick19744 for input.
I don't operate in a Windows environment so can't see what TT is actually doing.
However:
I completely agree that guaranteed payments need to be subtracted on Schedule M-2. According to the 1065 instructions, they should be deducted on line 7 of schedule M-2 but TT is deducting them directly against income on line 3.
I believe you will be fine.
Let TT compute the return and review it.
The instructions indicate "if line 3 includes income from guaranteed payments....."
Guaranteed payments in general are an expense of the partnership not income.
What the instructions are most likely referring to is if in a tiered partnership context, the partnership received a K-1 with guaranteed payments (income) then subtract those out on line 7.
Instructions are not always the model of clarity.
Thank you so much for the clarification! I appreciate your input. I will let TT calculate as is.