I have a question regarding self-employment income and the correct way to input that income in the TurboTax software for my specific situation. I operate a single-member LLC that is a disregarded entity for tax purposes which provides consulting and other services. That LLC is in turn a member in a multi-member LLC that is taxed as a partnership (Form 1065). I received a Schedule K-1 from the partnership (which was sent to me directly because my single-member LLC is a disregarded entity). I believe I need to report the income from the Schedule K-1 on my Schedule C since I materially participated in the business and the income is subject to self-employment taxes.
I assumed that when I go into TurboTax Online and go to Self-Employment, there would be an option there to indicate that the source of the income was from a K-1, but that isn’t an option (it only has 1099, 1099-NEC, etc.). What are the right steps to get TurboTax to fill out the forms in the right way?
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As your single-member LLC is a disregarded entity, all income and expenses are reported on your personal tax return. The income and expenses of the LLC are reported on Schedule C.
And the Schedule K-1 from your LLC's participation in the multi-member LLC is reported in the K-1 section of your personal return. The LLC's share of earnings reported in box 14 of the Schedule K-1 is subject to self-employment tax.
In TurboTax Online, you can enter your Schedule K-1 by following these steps:
Thanks for the reply. The thing is, the income on the Schedule K-1 is the income of the LLC. So do I report that income in the K-1 section of my personal return (which I think will go to Schedule E), or should I not report it there and instead report it on Schedule C?
Or if the answer is "both", how do I make sure that I am not taxed twice on the income?
If all the income of your SMLLC is reported by the multi-member LLC, you should enter only the information from Schedule K-1 for that investment.
Are you paid by the parent LLC? If so, are those considered guaranteed payments reportable on Schedule K-1? This income is considered self-employment and is subject to Self-Employment taxes.
Yes, Schedule K-1 activity is reported on Schedule E of an individual's tax return.
How about if there are expenses to offset that SE K1 income?
According to the IRS Instructions for Schedule E: "You can deduct unreimbursed ordinary and necessary partnership expenses you paid on behalf of the partnership on Schedule E if you were required to pay these expenses under the partnership agreement. You can only deduct unreimbursed expenses on Schedule E that are trade or business expenses."
If the LLC agreement does not allow for payment of unreimbursed expenses by a member, those expenses are no longer deductible. Under the Tax Cuts and Jobs Act, the itemized deductions for job-related expenses subject to the 2% of AGI floor are suspended for expenses incurred after December 31, 2017 through 2025.
TurboTax will ask you about unreimbursed expenses at the end of the Schedule K-1 entry process.
Step "3" does not exist.
What "Step 3" are you referring to? Please post and someone will try to assist you.
Are you referring to this above?
If so, you will not see that option in TurboTax Online, unless you have the Premium version of the software.
I have the same issue.
Let's assume all the income for my SMLLC comes from a multi-member LLC (K-1). I would then report the Schedule K-1 activity on Schedule E. But now, what happen to my Schedule C report? I wouldn't report anything since all income for my SMLLC was from the multi-member LLC. Wouldn't this look suspicious to the IRS? Or do I report the multi-member income in Schedule E and any expenses in Schedule C? It will be the same thing as putting all income and expenses in Schedule E, but at least my SMLLC looks like is active. I still feel like we have to put something in the Schedule E saying that the income is tied to the SMLLC. Thoughts?
The IRS considers you and the SMLLC to be the same entity. When you enter Schedule K-1 from the other LLC, you have reported that income on your tax return. If you were questioned about the lack of income, you have the K-1 as backup because here is no way to report the outside LLC activity on Schedule C for your SMLLC. Any expenses you have for your SMLLC would be reported on Schedule C.
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