Where do I input income received by my business (s...
Level 2

Where do I input income received by my business (sole proprietor LLC) from a K-1? It is not business income, but “other income” on schedule C.

 
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New Member

Business & farm

Income reported to you on Schedule K-1, even if attributed to your sole proprietorship or single-member LLC filing on Schedule C, is not brought into your income tax return through Schedule C. Rather, the K-1 is included in Part II of Schedule E Supplemental Income and Loss.

Even though your Schedule C business may be a "member" of the LLC, recall that for income tax purposes, the sole proprietorship or single-member LLC is a disregarded entity, and its income and expenses, profits, and losses, are inseparable from you, the individual taxpayer. Thus, its K-1 is your K-1.

This is logically the correct treatment of income. If the K-1 were reported through your Schedule C, the investment income from the K-1 would ultimately be treated as self-employment income, and subject to 15.3% self-employment tax, even though that income is not the fruit of your labor, but the fruit of your capital investment.

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New Member

Business & farm

I have 6 units of commercial office to rent. In 2019, I change the owner from myself to LLC. Am I still use schedule E to report my rental income or schedule C to report

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Level 1

Business & farm

I was liking the answer until the last sentence.  What I have is payments, based on flat hourly charges, for conducting insurance audits.  It is my pay for the work I do.  It comes to me through an LLC, of which I am a limited partner with .0001% interest, that I had to join to get the work from this company.  It is, I'm sure, designed to protect them from claims of "employee status".  The K-1 says "self-employment income" on line 14-A, but also has the same amounts on 4A & 4C.  I'm a sol prop/independent contractor.  I had set up all my expenses on schedule C as business expenses.  If I enter the k-1 income on schedule E  (personal income) then it leaves me a loss on sched C, which just seems wrong.   Not sure what will happen if I shift expenses to Schedule E, if I can even do that.  I don't think it will give me the easy option for choosing the home office deduction.  Any ideas please?

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Level 10

Business & farm


@Beaufort wrote:

an LLC, of which I am a limited partner with .0001% interest, 

 

I'm a sol prop/independent contractor. 

 


Unfortunately, no, you are not a Sole Proprietor/Independent Contractor.  At least not for this business.  You are a Partner.

 

And even more unfortunately you connected yourself with the messed up business.  They are claiming you are a "limited" partner, yet at the same time you are working for the company.  Those are generally opposites.

 

Does the agreement with the Partnership state that YOU must pay for all expense out of your own pocket? 

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Expert Alumni

Business & farm

Assuming you meet the requirements that you are required by the partnership agreement to pay all these expenses out of your pocket, on the Describe the Partnership screen immediately following the last "box" entry screen, select the "I am required to pay supplemental business expenses on behalf of this partnership/LLC for which I am not reimbursed".  

 

The series of screens that follow allow you to deduct your business expenses, including those for a home office.

 

@Beaufort

 

 

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Level 10

Business & farm

I agree with David, BUT you will need to indicate you are a "general" partner, or else the program isn't really going to apply those expenses correctly.  That is one reason why that Partnership situation is messed up.

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Level 1

Business & farm

Thanks DavidS127.  I shall give that a try.  I don't have to indicate that I am a general partner to get that option do I?  (that was mentioned by another comment)  K-1 identifies me as a "limited partner or LLC member", and further describes me in one box as a partnership, which I am not.  Don't understand that at all.

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Level 1

Business & farm

I don't know what would be the ramifications of indicating that I am a general partner, when the K-1 identifies me as a limited.  I agree this is a messed up situation, all designed to protect folks who are essentially employees from claiming that they are employees.

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Level 1

Business & farm

Yes it does require me to pay all my own expenses.

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