Thanks again for the detailed responses—super helpful.
To clarify: my W-2 comes from a payroll services entity that has a different EIN than the entity listed on my K-1. However, it's all part of the same overarching business. The K-1 comes from the main holding company, and I receive both every year (but not at the same time of course). The business includes a mix of operations, including real estate. Why would getting a k1 and w2 on a yearly cadence not common?
A few more points I’m hoping to clarify:
Box 14 on my K-1 has always been blank.
Box 1 and Box 2 show losses this year and previous years.
My goal is to determine if I should be considered as materially participating, especially since I’m actively employed by the same business (just technically via the payroll entity).
Here’s where I’m really stuck: Even if everything is marked as passive TurboTax is still having me pay tax on Box 5 (interest income)—but only if I check “Yes” to material participation. Is that correct behavior? I would have thought that if everything is passive (including Box 5), the interest would be offset by passive losses in Box 1/2, or at least not trigger tax on its own.
Is it possible that TurboTax is misclassifying the interest income if I check “material participation”? Or is there a rule I’m missing about how Box 5 interest gets treated differently?
Thanks again—really appreciate the insights here.
