I'm using TurboTax 2020 Home & Business to do my taxes. I think there is a problem with the Schedule SE Adjustments Worksheet at Part II, line 2. It is supposed to add the amount from Box 14 of Schedule K-1 for non-farm partnerships, which is the box for reporting earned income on the K-1, but instead (or in addition) it is transferring the Section 179 deduction from Box 12 of the K-1.
Section 179 deductions are not earned income (or losses) and should not be included as such on Schedule SE. If I try to override the line in the Worksheet, it keeps telling me there's an error I need to fix before I can file the return.
Am I incorrect in my assumption that Section 179 deductions passed through from a K-1 are not earned income? The IRS Schedule SE only mentions Box 14 from the K-1, not Box 12.
Is this a bug?
The Sec. 179 deduction is limited to a taxpayer's income that is derived from a trade or business and that includes w-2 income. There's a revenue procedure on this.........https://www.irs.gov/pub/irs-drop/rp-19-08.pdf
Thank you for your reply and the link to the information.
Unfortunately, it doesn't say whether Section 179 deductions passed through from a K-1 can be applied to (i.e., subtracted from) earned income as calculated on 1040 Schedule SE. TurboTax adds Box 12 and Box 14 from the K-1 to Schedule SE, even though the IRS instructions for Schedule SE specifically list Box 14 (which on the K-1 is used to report earned income), but not Box 12 (where Section 179 deductions are reported).
Thus, what TurboTax is doing on Schedule SE with respect to pass-through items from K-1s seems contrary to the IRS instructions.
I remain concerned.