LouD Posted September 4, 2009 Report Share Posted September 4, 2009 Client has S-Corp holding company that owns a 50% interest in several LLCs. For the first time this year, one of the LLCs allocated guaranteed partner payments of $45k to the S-Corp on the 2008 K-1 for some additional work that the S-Corp owner did for the LLC during the year. On the S-Corp return, this guaranteed payment is being routed by ATX to Box 10E (Other Income) of the K-1. Two questions: How do I treat this $45k of income on his personal return (the other income box does not route anywhere on the personal return). Secondly, is it subject to SE tax - it's coming thru an S-Corp so I wouldn't think it would be subject, but guaranteed partner payments are normally SE tax, so I'm not sure which answer is correct. thanks for the help! Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted September 4, 2009 Report Share Posted September 4, 2009 The partner who received the guaranteed payment is the S-Corp, not the client. taxbilly Quote Link to comment Share on other sites More sharing options...
samingeorgia Posted September 4, 2009 Report Share Posted September 4, 2009 Please be aware that IRS is looking at S Corps which show profit and zero officer compensation. They want to be sure that compensation is subject to Social Security and Medicare taxes; even though from an income tax standpoint, it's a wash. This is a real "facts and circumstances" issue - does the shareholder of the S corp. perform services through the corp. which cause the LLC to pay this money? If so, I think you may want to add most if not all of the $ 45K to the shareholder's salary. At one of our meetings, some people who I trust said that you would be OK with about 50% salary and 50% S Corp. profits. So if the total profit was $ 60K, they want to see about $ 30K as officer salary and $ 30K as S Corp. profit. Of course, once again, this presumes that the corp. profits come from labor and capital; I think you could rebut this if the owner does little or no work. If you find a deal like that, let me know how it's done. :lol: Quote Link to comment Share on other sites More sharing options...
LouD Posted September 4, 2009 Author Report Share Posted September 4, 2009 The partner who received the guaranteed payment is the S-Corp, not the client. taxbilly The next question is how to I report that income on the personal return since it's coming thru on the S-Corp K-1 as "Other Income" in Box 10E? Should I just add a new line item on the Schedule E pg 2 and call it "Other Income" for that S-Corp EIN? Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted September 4, 2009 Report Share Posted September 4, 2009 How exactly is the number getting to the other income line if it is only entered on line 1a of 1120-S? taxbilly Quote Link to comment Share on other sites More sharing options...
LouD Posted September 4, 2009 Author Report Share Posted September 4, 2009 How exactly is the number getting to the other income line if it is only entered on line 1a of 1120-S? taxbilly It's coming to the S-Corp via the 1065 K-1 in Box 4 for Guaranteed Payments Quote Link to comment Share on other sites More sharing options...
TAXBILLY Posted September 4, 2009 Report Share Posted September 4, 2009 I see what you mean. It flows directly from the 1065 K-1 to the 1120-S K-1. The directions don't shed any light on it so I would agree that it should show up on the client's Schedule E. I do not believe it would be subject to SE tax since the partner is the S-Corp and not the client. Weird! taxbilly Quote Link to comment Share on other sites More sharing options...
LouD Posted September 4, 2009 Author Report Share Posted September 4, 2009 I see what you mean. It flows directly from the 1065 K-1 to the 1120-S K-1. The directions don't shed any light on it so I would agree that it should show up on the client's Schedule E. I do not believe it would be subject to SE tax since the partner is the S-Corp and not the client. Weird! taxbilly thanks taxbilly - much appreciated for the help!! Quote Link to comment Share on other sites More sharing options...
kcjenkins Posted September 4, 2009 Report Share Posted September 4, 2009 I'd still want to be darned sure that the S corp salary was at least a significant portion of that payment, unless I had some really really solid reason why it was a payment related to use of assets and not to personal service. Given that this is a true 'target' area for the IRS right now. Quote Link to comment Share on other sites More sharing options...
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