If my expenses were more than what we took in, the...
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New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

 
14 Replies
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

There shouldn't be any overlap in income between the W-2 and the K-1.  The W-2 shows earnings you received by paycheck as an employee, which should have had payroll taxes deducted and sent in by the company.  

The K-1 shows your share of the partnership's income or loss that is yours because you are a partner.  You may or may not have received some of this as a cash distribution, but it is still income to you.

These are two distinctly different types of income, and need to be shown as different income sources.

New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

I did receive a k-1 and a w-2 that both report the exact amount for the same income... did my tax guy do something wrong? I have a tax guy that does the business s-corp tax and then I was going to just do my personal through turbo tax. Do i just ignore the k-1 and use the w-2?
Level 9

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

No, don't ignore anything.  Ask your tax guy about it.  From your description, yes, it seems wrong.  Look at the corporate tax return (Form 1120-S), and check if it shows your wages on Line 7 (check Line 8 too, in case it was misplaced there).
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

I am curious about what happened here because I still have the same question.  How are K1 and W2 distinctly different types of income and what did the 'tax guy' say about them being exactly the same?  Was that an error?  Here is my watered down scenario- 2 person business- one owner/one co-owner, set up as an S Corp, total sales $20000, total expense $13000, BOTH employees got paid $10000 in W2, owner has 98% interest in business while co-owner has 2%.  What am I missing?
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

This is happening to me too. My k1 is showing all income recieved but some of it is from w2.
Level 9

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

@stebecas   You can not receive a W-2 when you are Partner.  Was that the case, or were you an employee for part of the year, then you became a Partner?
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

Hi, the business is setup as an S Corp- me as President (98% shares) and my daughter as VP (2% shares).  We pay ourselves via W2.  Maybe the K1 doesn't even come into 'play' with us?  
Level 9

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

@sharrobins2   So Box 1 of the K-1 should reflect the profit of the corporation AFTER your wages were subtracted.
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

If my expenses were more than what we took in, then it would be a loss.  We are in 1st year of business so expenses were high for startup.  Correct?
Level 9

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

Yes, Box 1 of your K-1 would show a loss.  If you have "Basis" in the corporation, that loss would be deductible against other income on your personal tax return.
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

Thanks "TaxGuyBill", you have been very helpful.  I have an accountant who will do all of this for me but I like to be well informed before the process begins.  Have a good day!
New Member

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

Hi TaxGuyBill,

I am partnering with an existing business owner to acquire ownership through profit sharing contributions.  The idea is to use profit sharing to purchase shares, up to and including 20%.  The agreement is drafted for 2 years of automatic share purchases from the eligible profit sharing.  My question is how can I use 100% of the profit sharing to purchase the shares pre-taxed, at least until all shares are purchase and the excess be taxed as income.  Below are the brief details to the agreement.

 

Goal: 2 year plan to gain 20% ownership by the end of year 2.  Profit sharing will be automatically rolled into purchasing up to 200,000 shares of a 1,000,000 share company at $1.30 per share.

 

Example: year 1 yields $130K in eligible profit sharing, to purchase 100,00 shares; 10%.  Year 2 yields $65K in profit sharing and $65K in equity returns; 100% vested.

 

Year 1: Profit sharing will be automatically rolled into purchasing.  Remaining share percentage (10%) will be the eligible profit sharing for year 2. 

 

Year 2: Eligible profit sharing (10% per example) and equity returns from shares purchased in Y1 are automatically rolled into purchasing the remaining shares (10%) .  Any excess returns are to be received and taxed as income.

 

Please tell me if there is a tax differed strategy to do this without the profit shares or equity returns being taxed before purchasing the shares.  Otherwise, I will need to pay out of pocket for any remaining shares.  As you can imagine, I would have to write a very big check if taxed before purchasing shares.  Any and all advice is much appreciated.

 

Level 10

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources


@Hautehead wrote:

Goal: 2 year plan to gain 20% ownership by the end of year 2.  Profit sharing will be automatically rolled into purchasing up to 200,000 shares of a 1,000,000 share company at $1.30 per share.

 


 

Go to a good tax professional.  

 

It is crazy to be planning something complex involving hundreds of thousands of dollars without sitting down with a good tax professional that look at all of the details.

 

And assuming you mean retirement accounts when you are referring to "pre-tax" and "profit sharing", that further complicates things, including the fact there are limitations for contributing to retirement accounts.

 

Again, go to a tax good professional.

Anonymous
Not applicable

Do I have to enter K1 and W2 if from the same LLC partnership/business? There is an overlap in income on W2 and K1 and TT is seeing them as two different income sources

another wrinkle is that a retirement a/c owning an interest in a profit-making business may have to file 990-T to pay tax on unrelated business income.  another issue, how do you get the money out if you need it. under

59-1/2, there's a penalty.   company goes belly up - no deduction - you suffer the loss thru a reduced value of the profit-sharing a/c.     see a pro 

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