Deferrals from Guaranteed Payments

[jkharvey]

Can partners make deferrals during the year from the guaranteed payments made each month? Maybe I'm not understanding the concept, but the guaranteed payments themselves are not the earnings from self-employment.

[DMcGovern]

It is my understanding that some times the guaranteed payments are for services provided to the Employer, thus subject to self-employment taxes. These amounts would be reported on line 14, coded "A", and included in their K-1 as a part of their net income.

I would think that such guaranteed payments could have salary deferral deductions applied to them.

[jkharvey]

Now that you say that, I remember reading that, but then my question becomes, how is it treated if the K1 ends up w/ a loss so there is no "income"?

[DMcGovern]

Good question! Seems like the accountant would have to answer that one. The adjustments to the K-1 would create the net zero income, but if they elected to defer a certain percentage from their compensation, wouldn't that include the guaranteed payment? Would it not be required to take out the deferrals from those payments?

[Blinky the 3-eyed Fish]

You can't make deferrals from no compensation, so they get returned.

You also have a 415 violation assuming all of the deferrals are not catch up eligible.

[Bird]

Yes, partners can (generally) make deferrals from guaranteed payments, if they are considered part of their self-employment income, which I think they typically are. And if a net loss results after the allocation of profits, they would have to get refunds.

We have partners elect a dollar amount, not percent, to avoid the question of how much they want to contribute.