Where to report guaranteed payments from one LLC to another?

[emy]

My partner and I own a Partnership LLC (Lets call it Little LLC for ease), which acts as a holding company for our shares in another Partnership LLC (we'll call it Big LLC). 

Our Little LLC receives guaranteed payments from Big LLC as well as our share of profits. 

I've got our K1 from the Big LLC which reports our earnings as box 1. "ordinary income" and box 4a."guaranteed payments". That all makes sense. 

However, when I take that K1 and enter those amounts for the 1065-k1s for my partner and I, what box should they go in? 

Do I combine both numbers as ordinary income?

When I put them as guaranteed payments it seems wrong because we have 50K in ordinary income and 100K in guaranteed payments, so it makes it look like the business made a loss with only 50K coming in and 100k being paid out, whereas in reality, we received 150K from the business from the guaranteed payments and ordinary income combined. 

[DaveF1006]

 For each partner in Little LLC:

• Enter Box 1 from Big LLC → as Ordinary business income.
• Enter Box 4a/4b from Big LLC → as Guaranteed payments received.

You must keep them separate. They are not combined, and they are not interchangeable. Now let's examine why it may appear wrong. 

Inside Little LLC’s own 1065:

1. The ordinary income from Big LLC (e.g., $50,000) flows into Little LLC’s income.
2. The guaranteed payments from Big LLC (e.g., $100,000) also flow into Little LLC’s income.
3. Little LLC does NOT deduct guaranteed payments it receives—only the paying partnership deducts them.
4. So Little LLC’s total income is $150,000, not a $50,000 loss.
5. If your software is showing a loss, it usually means:

• You accidentally entered the guaranteed payments as guaranteed payments paid by Little LLC (Line 10 deduction), instead of guaranteed payments received.
• Or you entered ‌guaranteed payments in the wrong section of the K‑1 input.

 

[emy]

Okay, so to confirm box 4 'guaranteed payments' from Big LLC are received as 'Ordinary income' by Little LLC. Is that correct? 

[PatriciaV]

Yes. A partner who receives guaranteed payments reports the amount as ordinary income on his/her/its tax return. Since guaranteed payments are not treated as distributions, there is no effect on the recipient partner's capital account or tax basis in the partnership interest.