Agree. The K-1 form reports the guarantee payment on line 4c. The partner reports the total income including ordinary income (line 1) plus the guarantee payment (line 4c) which adds to what appears as self employment income on line 14A. So the 1040 gets the partnership income which includes the guarantee payment. What happens is that the 1040 Schedule 1 Adjustment to Income now includes the self employ health insurance deduction on line 16 which transfers to 1040 line 8a. That causes the Social Security taxable amount to be reduced (due to the line 8a deduction). Bottom line is that even though the 1040 income shows the guarantee payment as income, my tax decreases since the Social Security taxable amount decreases. Do you think this is what the IRS intends to happen? Hard question, I know, but it makes a sizable difference in the net tax. Thanks for any insight you can provide.
