Reporting Partnership income for a 2-Person LLC on 1040

[nachomendez]

I started a 2-person LLC with a partner last year. The start up was rather part-time later in the year and, as such, we didn't earn that much. We paid ourselves on an hourly basis. I earned about $5,000 and my partner about $4,000. We calculated for the 1065 and K-1's a partnership loss of about ($1,500) each. 

I'm clear where 1065/K-1 info goes. However, what I'm not clear on is the actual $5,000 that our LLC paid me. It seems to me odd that I would just record the partnership loss on the taxes and not the actual $5,000 income that I earned. Am I correct that that should be recorded as well? If so, where does it go?

Thanks in advance! 🙂

[DianeW777 · Accepted solution]

Yes, if this expense was used to reduce the partnership income on the K-1, then it should also enter your payments on your K1.  If that did not happen, then you should report the income as self employment income which ends up defeating the reason for the partnership. 

• In the partnership return, guaranteed payments fall into two categories: payments for services and payments for use of capital. On the partnership return, a guaranteed payment is an expense and is reported on Form 1065, Page 1, Line 10 and also on Schedule K Line 4, which is then sent to the K1 of each partner.

Otherwise, this should not be listed as an expense and the net profit should include these payments as part of the net profit. A partnership agreement should state information about guaranteed payments especially if the split is not 50-50.

[Rick19744]

The amounts you paid to your self and your partner are reported as guaranteed payments.