Pacun Posted April 6, 2014 Report Share Posted April 6, 2014 K 1 shows 4K in losses and 5K in guarantee payments to my client. It seems that the software is not taking into consideration the loss anywhere. Am I doing something wrong? Sch SE is correct because I entered 1K as income subject to SE, but line 17 of 1040 shows 5K. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 6, 2014 Report Share Posted April 6, 2014 5K would be subject to SE, I believe. The full Guaranteed Payments would be subject to SE. The Ordinary Income loss (I assume line 1) is something totally separate. Sometimes, you need to enter 2 separate 'K1' entries for the same K1 (enter Guaranteed payments on 1 and ordinary loss on the other) to get both to flow. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted April 6, 2014 Report Share Posted April 6, 2014 is the loss from a passive activity being limited? Quote Link to comment Share on other sites More sharing options...
joanmcq Posted April 7, 2014 Report Share Posted April 7, 2014 Basis limitation? Quote Link to comment Share on other sites More sharing options...
Lynn EA USTCP in Louisiana Posted April 7, 2014 Report Share Posted April 7, 2014 Or perhaps the k1 does not reflect the loss as from self employment income. Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 This is a disregarded LLC with two members. So everything passes through. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 8, 2014 Report Share Posted April 8, 2014 I think I'm really tired. If there were $4,000 in guaranteed payments, how would the loss affect (effect?) the self-employment tax? Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 I think I'm really tired. If there were $4,000 in guaranteed payments, how would the loss affect (effect?) the self-employment tax? That's one of my questions too. I am waiting for others to reply. Quote Link to comment Share on other sites More sharing options...
michaelmars Posted April 8, 2014 Report Share Posted April 8, 2014 This is a disregarded LLC with two members. So everything passes through. HOW can an llc with TWO members be a disregarded entity? Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 I meant, it defaulted to a partnership. AND I also meant that it only filed an information return. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 8, 2014 Report Share Posted April 8, 2014 I think I'm really tired. If there were $4,000 in guaranteed payments, how would the loss affect (effect?) the self-employment tax? If the loss is on line 1 of the 1065, is from ordinary trade or business activity, and the partner is a general partner that is active in the business, then the loss on line 1 is netted against the guaranteed payment to arrive at the self-employment income on the K-1. Hypothetical - it's also possible to have a sec 179 that is allowed because of the guaranteed payments even though there is a loss on line 1, so that actual income subject to s.e. tax might be reduced further yet. 1 Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 If the loss is on line 1 of the 1065, is from ordinary trade or business activity, and the partner is a general partner that is active in the business, then the loss on line 1 is netted against the guaranteed payment to arrive at the self-employment income on the K-1. Hypothetical - it's also possible to have a sec 179 that is allowed because of the guaranteed payments even though there is a loss on line 1, so that actual income subject to s.e. tax might be reduced further yet. Thank you. You just solved one part of the puzzle. There is nothing fancy about his partnership as a matter of fact, it stopped operating in Nov 2013 and they will close the LLC next month. So, why is ATX taking the 5K to line 17 of 1040 without taking into cosideration that the 4K loss for the partner?. I have entered the - 4K on line 1 of the K1 but maybe I should also enter it somewhere else. I am going to check the basis but I doubt that's the issue. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 8, 2014 Report Share Posted April 8, 2014 It might be picking up a figure for s.e. income from line 14, code A from the K-1. Did you prepare the partnership return? ATX calcs that automatically unless you override. Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 It might be picking up a figure for s.e. income from line 14, code A from the K-1. Did you prepare the partnership return? ATX calcs that automatically unless you override. Yes, I did prepare form 1065. Only 2 partners, 50% all the way. I have entered on line 1 -4,000. Guarantee payment =5,000 and line 14 it reads 1K so Sch SE is correct but line 17 of form 1040 has 5K and i think it sould be only 1K. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 8, 2014 Report Share Posted April 8, 2014 I am so confused about this. The guaranteed payments are part of the loss, so if you don't report them on line 17, aren't you deducting them twice? I might need to go a) back to bed or back to school. I NEVER knew what Judy posted about the loss being subtracted from SE income for General, Active partners who received actual guaranteed payments. Scares me to think about what else I don't even KNOW that I don't know. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 8, 2014 Report Share Posted April 8, 2014 That should have been a b ). I forgot the space. AAAARGH. Quote Link to comment Share on other sites More sharing options...
jklcpa Posted April 8, 2014 Report Share Posted April 8, 2014 No, it isn't being deducted twice. Simple hypothetical example - a business income statement shows: Gross profit from operations $30 Guaranteed payments $20 Other deductible exps $18 Loss per books $ 8 1065 pg 1 will report the guar payts of $20 and will have an ordinary loss of $8 The income(loss) before any payments to the partner would be a profit of $12 and that's what partners will pay s.e. tax on (GP of $30 - other exps of $18), but it flows through from the 1065 in the pieces of guar pay't net of the ord loss. (20-8) Sch K and the totals of all K-1s will show: Ln 1 - Ordinary trade or business loss, line 1 ($ 8) Ln 4 - Guaranteed payments $20 Line 14 - (A) Self employment income $12 Line 14 - (C ) Gross nonfarm income $30 Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 I am so confused about this. The guaranteed payments are part of the loss, so if you don't report them on line 17, aren't you deducting them twice? I might need to go a) back to bed or back to school. I NEVER knew what Judy posted about the loss being subtracted from SE income for General, Active partners who received actual guaranteed payments. Scares me to think about what else I don't even KNOW that I don't know. This is the way I see it. You and me become partners and start preparing taxes. If we don't want to have a loss (if you thinking would be correct), we would agree that when you prepare a return, you get 40% of the fees collected right away. When I prepare a return, I do the same thing. If we don't have guaranteed payments, then you will be the only one workig and I would be in my country just waiting for the judgement day (April 15) to split all the money. Let say that you worked hard and collected 100K and the profit for the company is 60K. Since we didn't agree on garanteed payments, I want my 50% of profits and losses, which should be 30K for me just because I enjoyed my country while you worked. With Garanteed payments, you would have received $40K in guaranteed payments and then we would split $20K in profits which would make it is reasonable that you got 50K and I got 10K. What would have happened to you if we had a law suit and we had to pay $30K? Then the company would have a loss of 10K. 5K of those were yours and then you would pay SE taxes only on 35K. For SE, it doesn't matter how we do it. As a matter of fact, having garantee payments will mean that SE will be paid in 35K, if there were no garanteed payment, then we would pay SE only on $30K. If you were correct, a lot of partnership would be monitoring the guaranteed payments all the time so that they don'g go over the proftis. Quote Link to comment Share on other sites More sharing options...
Pacun Posted April 8, 2014 Author Report Share Posted April 8, 2014 No, it isn't being deducted twice. Simple hypothetical example - a business income statement shows: Gross profit from operations $30 Guaranteed payments $20 Other deductible exps $18 Loss per books $ 8 1065 pg 1 will report the guar payts of $20 and will have an ordinary loss of $8 The income(loss) before any payments to the partner would be a profit of $12 and that's what partners will pay s.e. tax on (GP of $30 - other exps of $18), but it flows through from the 1065 in the pieces of guar pay't net of the ord loss. (20-8) Sch K and the totals of all K-1s will show: Ln 1 - Ordinary trade or business loss, line 1 ($ 8) Ln 4 - Guaranteed payments $20 Line 14 - (A) Self employment income $12 Line 14 - (C ) Gross nonfarm income $30 Jasdlm, For a moment think that there were guaranteed payments on this partnership. So you will have income for $30 minus $18 on expenses, you will end up with $12 for SE. Which is the same as above. Quote Link to comment Share on other sites More sharing options...
jasdlm Posted April 8, 2014 Report Share Posted April 8, 2014 Sometimes I'm just not very bright . I get it now. Duh. Thanks, everyone, for your patient explanations. I really appreciate everyone on this Board. Quote Link to comment Share on other sites More sharing options...
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