K1s and W2s

[CJS07]

Plan has four owners who all receive K1s and W2s. There are no other employees. When running the K1 calculations (by individual) I am getting a negative number for two employees. I am not sure how to handle a negative K1. . .For example:

K1 compensation totals $2,700 (before any deductions)

W2 compensation totals $35,000

After running the K1 compensation thru the self-employment earnings calculation and deducting self employment and the profit sharing contribution for the year I am left with a negative number ($9,500). Can I then add the W2 compensation of $35,000 to the ($9,500) and use the $25,500 as the participant's total compensation for the year?

Also, does anyone know of a good resource to read up on K1 and Schedule C compensation? I feel like I get caught up on this stuff every year. . .

Thanks!

[rcline46]

The only way I know an owner can get a K-1 and a W-2 is in a Sub S corp or LLC taxed as Sub S, and in those situations the K-1 is pass through income and does not count for benefit purposes.

[401king]

Also, does anyone know of a good resource to read up on K1 and Schedule C compensation? I feel like I get caught up on this stuff every year. . .

Thanks!

I've always been told that 401k's cannot consider K1 as income, but always had a hard time finding the facts on that. I'd be interested in someone shedding some light on this, as well.

[Bird]

We're seeing more and more partnerships and especially LLCs taxed as partnerships where the partners are getting W-2 income as well as the expected K-1 income. I've always thought that partners should not get W-2 income, but apparently accountants don't care, because it seems every new partnership I come across is doing this. I don't see it as my problem, if it is a problem at all, and I net the numbers - with a negative K-1, just subtract the loss from the W-2 and ignore the SE tax deduction; they will have paid too much on their W-2 income but if that doesn't bother them, it's ok by me. You'll have to subtract the PS from the K-1 also, which makes the whole calculation more difficult.