I am a limited partner in a partnership. I have $16,433 reported on K-1 Form 1065, Box 1 (ordinary business income). Of that amount, $16,070 reported in Box 14 (code A) is attributed to self-employment. I have an accumulated loss from prior years, and I have offset the $16,433 from Box 1 against that loss on Form 6198. Since the accumulated loss absorbs completely the entire $16,433, must I still report the $16,070 from Box 14 on Form 1040SE and pay self-employment tax on it even though this $16,070 from Box 14 is included in the $16,433 in Box 1 (which I am offsetting against the at-risk accumulated loss reported on Form 6198)?
Yes, you must still report the $16,070 on Schedule SE and pay the self-employment tax, even though your partnership income is being offset by your accumulated losses on Form 6198. Your losses can only affect your federal income tax liability, not your self-employment tax.
Per the Schedule SE instructions, self-employment tax is determined by net earnings from self-employment shown in Box 14 (code A). There is no reduction allowed for losses on Form 6198. For the list of income and losses not included in the net earnings amount, click here.