Need to have a few more facts:
- Is this a limited partnership or an LLC that is taxed as a partnership?
- Depending on the response to number one, are you a material participant in the activity?
- What box is checked on your K-1 item G?
- What type of business are we talking about. This ties into number 2 above and may have an impact on the tax implications.
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."