Income reported to you on Schedule K-1, even if at...
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.

View solution in original post

This widget could not be displayed.
Privacy Settings