Question

K1 income from an LLC taxed as a partnership and self-employment tax

Forum|Forum|7 years ago
June 1, 2019
1 reply
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I have K1 income from an LLC taxed as a partnership. I believe I am a limited partner legally, but have over 500 hours worked in company. Income wasn’t guaranteed payments, but I believe from what I’ve read that I still need to pay self-employment tax on the income. Turbo tax did not include that income in my self employment income. Is that correct or should I add the income into line 14 on my k1 when entering in turbo tax?

TurboTax Self Employed iPad

Rick19744

Employee

LLC's and SE tax is a difficult area. This is because there are only proposed regulations that have been out since 1997 and as a result positions are taken across the board; conservative to aggressive depending on the facts in each case.

Also keep in mind that the definition of limited partner/member differs for legal and tax purposes.

The K-1 form really only provides for two options; either subject to SE or not subject to SE. This result depends on which box is checked in Part II line G. If the member manager box is checked software will most likely subject all earnings to SE tax. If the other LLC member box is checked the software will most likely not subject any of the earnings to SE tax other than if guaranteed payments are reflected in Part III line 4.

So in your case, I am assuming that Part II line G is marked as other LLC member. Changing this to member manager in the interview screen input for the K-1 should subject all your earnings so that they are subject to SE tax.

There are a number of other issues that should be addressed by the preparer of the K-1, but that discussion is beyond the scope of this forum.

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

J

jkearns

Rick - I have marked members as "Other LLC Members" and their K-1's do not show self-employment (which is correct), however, Line 14c on Schedule K still shows a figure for Gross nonfarm income. My CPA indicates that this should be $0. Is their anyway to edit this line item? (the income is coming from another LLC k-1 (Box 1). Any guidance you could provide is greatly appreciated.