Net earned income computation for partnership

[Guest tmills]

It is clear that in order to calculate a partners net earned income, his share of non-partner contributions must be subtracted from his gross income. Most illustrations I have seen show a profit sharing contribution being subtracted, some also discuss match. My question is does that subtraction include non-partner (employee) deferrals? Sal Tripodi's treatise says that the deduction should include the partner's share of employee deferrals (plus match and PS, if any.) While I believe that makes sense, I haven't seen that anyplace else. That could have a major impact on partner compensation. Any insight would be appreciated.

[austin3515]

Partnership is income is reduced by 401(k) contributions inasmuch it is included in the compensation figures that are deducted from partnership income.

[Bird]

True. Just be careful to make sure you and the accountant are on the same page. If any company contributions are being made during the year, and the accountant has already expensed them before giving you the profit figures, then you don't want to subtract them again. (Actually it's best to add them back in to start with net profits before any plan contributions in that case.) And you need to know if the partners or sharing expenses equally or not. At the end of the day you just have to do the best with what you're given.