Why does TT show self-employment tax due on Limite...
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Why does TT show self-employment tax due on Limited Partnership K-1 income that is not guaranteed payments?

 
2 Replies
Level 10

Why does TT show self-employment tax due on Limited Partnership K-1 income that is not guaranteed payments?

Need to have a few more facts:

  1. Is this a limited partnership or an LLC that is taxed as a partnership?
  2. Depending on the response to number one, are you a material participant in the activity?
  3. What box is checked on your K-1 item G?
  4. What type of business are we talking about.  This ties into number 2 above and may have an impact on the tax implications.
*A reminder that posts in a forum such as this do not constitute tax advice.*
New Member

Why does TT show self-employment tax due on Limited Partnership K-1 income that is not guaranteed payments?

Rick, Thanks for responding:

1. This is my brother's return but believe it is an LLC taxed as partnership.

2. Material participant in year one (last year) but not in 2019. The partnership was ended 1/1/20. He worked about 300-400 hours on new business in '19 while the other General Partner focused on existing revenue-generating clients. None of the income was guaranteed income, and as LP had no contract signing authority and no liability/debt share; he was paid 30% of income. Business was a CRM software reseller (quarterly per seat fee-based) with some initial setup work and ongoing maintenance services. It doesn't appear to qualify as a Personal Service Activity. I went through the Material Part Q's in TT with conclusion that he was not a material participant.

3. Box G was ticked as "Limited Partner or other LLC member".

4. See 2 above. Note that last year TT did not calculate SE tax as materially participating Limited Partner. It appears that the driver for TT self-employment this year is the amount in Box 14 Self-employment earnings, coded as A (Net earnings from SE) with another amount in Box 14 coded as Gross non-farm income. Is there a TT fix or do we need to get an amended K-1 (changing the income type to C)? Or some other fix?

 

Note: The IRS website says that: "If you're a limited partner of a partnership that carries on a trade or business, only guaranteed payments for services you rendered to, or on behalf of, the partnership are net earnings from self-employment. Limited partners don't pay self-employment tax on their distributive share of partnership income, but do pay self-employment tax on guaranteed payments."   

Thanks,

Jon

 

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