Did I materially participate in the operation of this business during 2021?

[Turtle7]

How do I answer "did you materially participate in the operation of this business during 2021?"  I was a contract worker for a business in 2021.  I worked over 100 hours, but not quite 500 hours.  I was the main person scanning documents.  I don't believe anyone else scanned as many hours as I did during the year.  The owner of the business managed/oversaw the job I was doing.  This is the first year I worked for this company.

[ColeenD3 · Accepted solution]

Yes, you materially participated.

Material participation occurs when a taxpayer is involved in a business on a regular, continuous, and substantial basis. If so, the taxpayer can check off a "material participation" box on his Form 1040. An outside investor in a business is probably not engaged in material participation in the business since he is merely providing funds to the entity.

Material Participation

[Turtle7]

Thank you.  Your response was helpful and answered my question.

[dgs0321]

I don't think it matters.  It sounds like you were an employee.  Employees don't have to worry about material participation rules.  They can simply file their w-2 or (if your employer improperly gave you one) 1099-Nec.  Material participation rules only apply to owners/investors in a business.     

[Dgyp]

I'm hoping to piggy back on this question.  I am an employee of a company that is an LP but I am also a limited partner (VERY limited! 🙂 )...  They basically do this instead of stock options.

I got my first Schedule K-1 that has a distribution and Turbo Tax asks "Did you materially participate in this partnership's business activities during 2021?".

I feel like "of course I did, I worked there full time".  I am not an "investor" so... is this as simple as it sounds and yes, I did "participate"?

It feels like a silly question yet I can't find an answer anywhere that says "answer yes if you are a full time employee of the LP".  That seems like a simple statement that could be in the help page or easy to find it I googled it!