How is a Partnership deduction taken?

[Guest steve55]

Hi,

I am in partnership with one other partner and we each take a monthly draw throughout the year, pay estimated taxes and issue K-1's for income tax.

If we implement a 401k plan, we have no formal *salary*. Can we take the deduction without having a formal salary and where would the deduction be shown on the partnership return and K-1's.

Thank you for your help.

[Lori Friedman]

1. You base your plan contribution on your distributive share of net earnings from self-employment.

2. Your distributive share of partnership income is treated as being received and available on the last day of the partnership's taxable year.

3. Your own plan contribution isn't deductible on the partnership entity level. Don't deduct your contribution on Form 1065, Line 18; this line is for contributions made for the benefit of your firm's actual, Form W-2 employees, not for contributions made on behalf of partners.

4. Report your own plan contribution on Schedule K-1, Line 11, along with an explanatory statement.

5. Deduct your contribution on your individual income tax return -- Form 1040, Line 30.