I have a sole proprietorship, through which I recently became a partner in a partnership. How do I report the partnership income on my 2017 tax return?

[melissajeanette]

I've been reporting sole proprietorship income via the Schedule C for prior years. At the end of this year I will get a K-1 noting guaranteed payments from the partnership, in the same business name I use for my Schedule C business. Will the guaranteed payments from the partnership be reported as pass through income on the Schedule E or gross income in the business name on Schedule C?

[Critter]

Ok ... at some point did you stop doing business as a Sole Prop reported on a Sch C  and start doing business as a partner on a Partnership reported on a 1065?

If so then all your Sch C income & expenses up to that point will be reported on the Sch C  and then any income & expenses coming from the partnership will be reported on the K-1 and be entered on the Sch E.  Do NOT put sch E income on the Sch C ... doing so will double your taxes.  These are now totally separate business entities so do NOT mix them up together.

[SweetieJean]

Is your new partner your spouse?

[melissajeanette]

Thank you. I still do business in my Schedule C business name. And I receive guaranteed payments from the partnership in my Schedule C business name. If my guaranteed payments to partners is being reported on the Schedule E, can I still report my normal business expenses on the Schedule C?

[melissajeanette]

My new partner is NOT my spouse. He had a sole proprietorship that was converted into a partnership when he made my Schedule C business a partner via a partnership/operating agreement.

[Critter]

NO.... your Sch C business cannot be a partner and cannot get a K-1 in it's name.  

Once you became a partner the Sch C business closed and all the partnership expenses should be paid thru the partnership .... you CANNOT  have the income on the Sch E  and the expenses on the Sch C ... you are not allowed to mix the 2 up like that.

You and your partners really need to talk to a tax professional/CPA to get things set up properly and get educated on the entity you started.  Making big mistakes like that will cost you more down the road in penalties & interest then a consultation fee is right now.

[melissajeanette]

A professional accountant and attorney drew up all of the paperwork. The partnership is jointly owned by my company and another company, an S-Corp, which is then owned 100% by my business partner.

I may have phrased it poorly, but my business expenses are separate from the partnership. They are not paid by the partnership just like my annual report filing fee for my business is not paid by the partnership.  The only thing I get from the partnership are guaranteed payments. My cell phone, insurance, etc.has always been listed as a deductible business expense on the Schedule C.

[melissajeanette]

It may help to clarify that I know that, as far as tax matters are concerned, my business and me are indistinguishable. I know that my "guaranteed payments" will be reported on the K-1 from the partnership which makes sense that they will then be reported on my Schedule E. I guess I'm just not 100% sure how my tax deductible expenses for my business will be reported.

[Critter]

I think you have got it very wrong but maybe other user's will chime in on this thread.

[SweetieJean]

Is your own company an S Corp?

[melissajeanette]

I know that there are no issues with business acting as partners for a partnership. I am a commercial credit analyst and I see 1065's all the time with LLC's listed as partners. My business is a single member LLC viewed as a sole proprietorship for tax purposes. I have separate EIN for all income and expenses for the business.

[SweetieJean]

@Critter#2  I wonder if this is really a Joint Venture (project) agreement, and not a legal partnership.
@melissajeanette  What kind of business is involved here?

[SweetieJean]

This may shed some light:
<a rel="nofollow" target="_blank" href="https://ttlc.intuit.com/questions/2805696-single-member-llc-gets-k1-as-part-owner-of-multi-member-pa...>

[Critter]

Ok ... well an LLC  is not the same thing as just a plain Sch C sole prop even though they use the same forms ... so if the income is being reported in the LLC's name & number then the income & expenses do go on the Sch C.   The IRS will be able to follow the K-1 flow to the Sch C and not expect it on the Sch E.

[melissajeanette]

I am genuinely sorry for misspeaking previously and I cannot tell you both how much you have helped. Thank you!