Form 1065 expenses reported as business loss and self-employent earnings loss

Forum|Forum|2 years ago
March 5, 2024
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I am treasurer for a stock investment club (partnership). I have a problem with business expenses being reported as business loss and earnings loss from self-employment. In the past we have used unique investment club accounting software to track transactions and file our 1065 partnership return and K-1s for members. This year we have a specific issue that cannot be handled by that software, so I am using Turbo Tax for Business. All of our income is from dividends, interest, and gain on stock sales. In 2023 we had $1209 of investment related expenses for tax software and membership in a national investment club. I input dividend and security transactions, and the expenses, in TTax, and the Schedule K includes $1209 as a business loss on line 1 and also as a net earnings loss from self-employment on line 14a. That has NEVER been reported that way in prior years. The Schedule K also reports that amount as an investment expense on line 20b, which is consistent with prior years. I reported all income as “investment income” and all expense deductions as “common business expenses.” How can I report those expenses so they don’t also appear as business loss or loss from self-employment?

TurboTax Business Windows

PatriciaV

Employee

Please clarify if the issue is that (1) the expenses are creating a loss or that (2) you have a self-employment loss on Schedule K-1.

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wpwiegandAuthor

I think both are an issue. The $1209 business expenses are reported as a business loss on kine 1 of the K-1 and as a self-employment earnings loss on line 14a. They are also reported as a deduction on line 20, which seems correct to me. I think they should not be reported on lines 1 and 14, but I don't know how to make them go away.

PatriciaV

Employee

Is there a reason why your investment expenses would not be included in partnership income?

Note also that Schedule K-1 codes were extensive revised for tax year 2023.

Schedule K-1 Line 1 is ordinary business income (loss), so if you had less income than expenses, you would see a negative number on this line.

Likewise, Line 14 reports self-employment earnings (loss). Again, this could be a negative number (and might be the same as Line 1 without any other reported income/expenses).

Line 20 is "Other Information" for the partner/member to report on an individual return. Generally, this information is either included in the income/loss amount or has no effect on the partnership return.

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Rick19744

Employee

@wpwiegand

A few comments:

I am not in a Windows environment so don't have access to the software
Having said that, the items reported on the K-1 you received need to pass through to the partners of your partnership with the same character; as you most likely understand.
In order for an item to be reflected on the K-1 line 1(and also Sch K), is due to the fact that you input that amount as income / expense from the partnership trade or business. It does not belong there. You only have separately stated items to input.
You need to reflect those expenses ($1,209) on Sch K line 20b only; and possibly Sch K line 13 Code AE.
Review your methodology of input based on the above and you should resolve the issue.

*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.

wpwiegandAuthor

I agree with the comment from Rick19744, thank you, Rick, about

You need to reflect those expenses ($1,209) on Sch K line 20b only; and possibly Sch K line 13 Code AE.

That is the way the club accounting software has always reported it in the past. The question I have been trying to ask, perhaps not clearly, is how can I do that? Everythinrg I try to do to get those amounts reported on lines 13, code AE, and 20, code B of the K-1 results in a business loss (line 1) and self-employment earnings loss (or similar wording) on line 14. I did put the correct numbers and codes on each individual K-1 using an override, and the tax return review feature said the return was correct, but when I tried to e-file it said they were in error. I don't remember the exact reason, so I put them back as investment expenses and K-1s are probably incorrect. I can't find a way to report them correctly. VERY FRUSTRATING!!

PatriciaV

Employee

Overriding formulas or calculated numbers in TurboTax not only invalidates the Accuracy Guarantee, in most cases it invalidates the return for e-filing (an IRS rule). Instead of manually entering numbers on Forms, you should follow the step-by-step interview so that your entries are properly reported on the forms in your return.

You are unlikely to reproduce the same entries that will be reported to you on Schedule K-1. Your best option is to wait, then enter the K-1 under Investment Income.

Finally, due to the unusual nature of your "partnership," you may consider upgrading to TurboTax Live. This online service provides step-by-step guidance from a tax expert whenever you need assistance, either over the phone or by screensharing.

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