I agree that based on your facts, the payments are NOT guaranteed payments; for exactly the reason stated by TT.
Having said that, the end result should be the same.
I would just record all income and expense and then split it 50/50 as you indicate that is how it should be handled. Then the program will allocated everything 50/50 onto the K-1 box 1.
Guaranteed payments are reflected as an expense on page 1 of the 1065 and then reported on the respective partner's K-1. This is then reported as SE income along with anything else in box 1 (less any applicable deductions that are separately stated). So as you can see, in the end, it all works out the same.
The piece I believe you are missing, is the netting process that happens on the K-1. Your box 1 and box 4 get netted for purposes of your 1040 for both income tax and SE Tax purposes.
The payments to each partner then become a distribution reported on the K-1 line 19 code A
A quick example:
$100,000 in income and $40,000 in business expenses
Scenario 1
Show the $100,000 as guaranteed payments 50/50. $50,000 each. Page 1 of the 1065 will show $40,000 as the net loss (because the two $100,000 amounts offset). Each K-1 will show the $50,000 in guaranteed payment in box 4 and a $20,000 loss in box 1. This nets to $30,000 each.
Scenario 2
No guaranteed payment. Page 1 of the 1065 shows net income of $60,000 which is then split 50/50. Each K-1 box 1 shows $30,000 income. This is the same result as scenario 1.
Having said that, once again, I don't believe you have any guaranteed payments.
*A reminder that posts in a forum such as this do not constitute tax advice.
Also keep in mind the date of replies, as tax law changes.
