Why will TT not count K1 income of an active partner toward ira contribution?

[woodythegoat]

Hi,

My daughter contributed to a Roth IRA in 2018.  K-1 partnership earnings are her sole source of  income. TT indicates that all of her contributions are in excess because she has earnings of zero.

It is my understanding that these earnings should count if she is an active partner, which she is, and I have indicated that in the Q & A. The software does not seem to acknowledge that fact.

This was not an issue on prior year tax returns. What's up?

[dmertz · Accepted solution]

Perhaps the Schedule K-1 was prepared incorrectly.  The amount on a Schedule K-1 (Form 1065) that is compensation that will support an IRA contribution is the amount reported in box 14 with code A (reduced by the deductible portion of self-employment taxes and by any self-employed retirement deduction).

[woodythegoat]

That was it, I missed the box 14 entries each and every one of the several times I went over this K-1!  Thanks a million for the help!

[keez]

I am having the same issue--with both my 1099-M and K-1 income not counting as income for my Roth IRA contribution. I get an error that I have over-contributed to my Roth IRA. I am using the desktop version of TT. I duplicated my return in online TT and did not have this error. I have downloaded the latest updates to my desktop version.

*Box 14 on my 2018 K-1 is for Foreign Transactions, which I have none.  I do have values for V and W which I entered into TT (desktop and online).

*Box 7 Nonemployee compensation has a value on my 1099-M which was entered into TT (desktop and online).

[dmertz]

The discussion on this thread is about a Schedule K-1 from a partnership.  keez, you instead received a Schedule K-1 from an S corp.  Income on a Schedule K-1 from an S corp is not compensation that will support an IRA contribution.

If you were an active participant in the S corp you should have received a Form W-2 from the S corp reporting your compensation because you are an employee of the S corp, not self employed (except for the purpose of a self-employed health insurance deduction).  You should not have received a Form 1099-MISC from the S corp unless, perhaps, is was for service as an independent contractor prior to becoming a shareholder.

Income properly reported on Form 1099-MISC for services legitimately performed as an independent contractor or sole proprietor are reportable on Schedule C (entirely separate from your income as a shareholder in the S corp) and the amount of profit on Schedule C reduced by the deductible portion of self-employment taxes and any deductible self-employed retirement contributions is compensation that will support an IRA contribution.