New job that generates a K-1

[Sandra251]

My husband started a new job last year and the tax status is a partnership that generates a K-1 for income.  He is paid quarterly and started last November (2020).  He did not receive compensation for November through December until January 2021. Should we have paid taxes on that income for 2020 anyway, do we need to file an amended tax return? Also, since he is part of a partnership entity in NY state, is this considered a pass-through entity and are we able to claim the federal tax on his income as a deduction to our NY state taxes due to the SALT deduction workaround recently approved by NY state? If so, how do we do that, what does that look like?

Thank you

[AdamNe]

Hello @Sandra251 !

Congratulations to your husband on his new job!

First, yes, if you received a 2020 K-1 and it was not included in your tax return, you will need to file an amended return to claim the income. If you do not, it is likely you will receive a CP2000 notice from the IRS, with penalties and interest possibly being assessed. If you didn't receive a 2020 K-1, then all of the income will be reported in 2021, and you can wait to report it. 

Second, on your question about the New York PTET election - the entity itself will have to elect into paying the tax (the deadline is October 15). Then, the taxes paid will be reflected on your husband's K-1 when he receives it for 2021. 

[Sandra251]

Thank you.  On the 1st part - does this apply even though the amount earned in November and December was not paid out until January 15? The only amount paid in 2020 was by us (debit for us) to the partnership to enter (buy into) the partnership.

And on the 2nd part - they partnership would be paying federal tax on his income so that we could then use that as the deduction for state taxes, is that correct? 

[AdamNe · Accepted solution]

If you did not physically receive the income in 2020, you will not have to report it in 2020. You would know because you would have received a 2020 K-1 with income on it. If you didn't receive that, you won't need to worry about amending. 

It's actually the other way around. If the partnership elects this method, the partnership pays state tax as an entity, and that flows as a deduction onto the K-1, thus lowering the taxable income federally.