2024 Promotion from W-2 Employee to K-1 Owner

[adarby]

Hi there,

In 2024, I was promoted from a W-2 Employee to a K-1 Owner, and granted an ownership share in the business (partnership). Currently, I receive a salary and yearly bonus as well as partnership distributions. Taxes are withheld for state-related business taxes, but not federal personal taxes (like prior W-2's). I have paid estimated taxes throughout the year (110% of 2023 total).

What else should I know about my change in tax situation? Any moves I should make before year-end to reduce taxes as a self-employed business owner? Does TurboTax have any introductory materials that touch on this transition? For reference, I am a single filer with no dependents. 

Thank you! 

[AR_CPA2]

Hello there adarby,

Hearty congratulations on your promotion!!

It's great that you have already paid estimated taxes for 2024 (110% of your 2023 Total Tax). What's new this year for you is that you should be getting a Schedule K-1, when the Partnership files its taxes.  You will need to enter that K-1 when you do your own personal tax return.

Here is some additional information:

Partnership Taxes: A Guide for Beginners

What is a Schedule K-1 Tax Form?

Thanks for participating in TurboTax's Ask the Expert event today. I hope this information was helpful!

Have an amazing day.

AR (CPA 10+ years)

[quorumof1]

Hi There

The biggest change is to realize that, now as a business owner, all share of profit will be subject to 15.3%. self employment tax payable on your individual tax return. See below. This is in addition to regular income tax.

The self-employment tax rate is 15.3%, which is a combination of a 12.4% Social Security tax (also known as OASDI tax) and a 2.9% Medicare tax on net earnings. Self-employment tax is not the same as income tax. In 2024, only the first $168,600 of earnings is subject to the Social Security portion.

Tax moves should generally should made at the partnership level. E.G. buying and expensing business equipment will lower partner regular tax and self employment tax at the individual level.

At the individual level, depending on income, a good tax move might be a retirement plan contribution.

Please see below for more detail.

Retirement Plan 

[mblumenthal]

Partners should not be on the payroll as opposed to s-corp shareholders having to be paid reasonable compensation. So, as of the date you acquired equity in the partnership, your salary should stop. For the rest of the year you will get your distribution of profit/loss on your form K-1.