Compensation for a Partner

[Alex Daisy]

A partner of a Company that sponsors a 401(k) Plan would like to make elective deferrals into the Plan.

Where on a Schedule K-1 do I find the partners Net Earnings from Self Imployment?

What about the Guaranteed Payments on the K-1. Can this be used towards calculating Net Earnings from Self Imployment?

Any help would be greatly appeciated.

[Laura Harrington]

A partner of a Company that sponsors a 401(k) Plan would like to make elective deferrals into the Plan.

Where on a Schedule K-1 do I find the partners Net Earnings from Self Imployment?

What about the Guaranteed Payments on the K-1. Can this be used towards calculating Net Earnings from Self Imployment?

Any help would be greatly appeciated.

Line 14, code A.

If the accountant followed the instructions, the guaranteed payments are taken into account when computing line 14, code A so you do not add them to that number to arrive at net earnings from self-employment.

I assume this partner wants to make deferrals based on earned income for the prior year? Remember that he still had to have his deferral election in place before the compensation became available to him (i.e. the last day of the year).

[Alex Daisy]

A partner of a Company that sponsors a 401(k) Plan would like to make elective deferrals into the Plan.

Where on a Schedule K-1 do I find the partners Net Earnings from Self Imployment?

What about the Guaranteed Payments on the K-1. Can this be used towards calculating Net Earnings from Self Imployment?

Any help would be greatly appeciated.

Line 14, code A.

If the accountant followed the instructions, the guaranteed payments are taken into account when computing line 14, code A so you do not add them to that number to arrive at net earnings from self-employment.

I assume this partner wants to make deferrals based on earned income for the prior year? Remember that he still had to have his deferral election in place before the compensation became available to him (i.e. the last day of the year).

Laura:

What if the Guaranteed Payment amount is positive, but Line 14, code A, which includes the guaranteed payment, is negative.

Can they defer based on the Guaranteed Payment amount , even thought Line 14, code A is negative?

[Laura Harrington]

Laura:

What if the Guaranteed Payment amount is positive, but Line 14, code A, which includes the guaranteed payment, is negative.

Can they defer based on the Guaranteed Payment amount , even thought Line 14, code A is negative?

The partner has to have earned income in order to defer. The guaranteed payments are already taken into account when determining the net earnings from self-employment on line 14, code A. So if the net earnings from self-employment is $0 or less then the partner does not have any earned income and therefore cannot defer.

I know this is difficult for partners to swallow because they actually took home money during the year from their guaranteed payments. But earned income also takes into account the profit or loss of the business, so they have no compensation for the plan.

[K2retire]

I haven't looked a the2009 Schedule K-1, but in past years the net earning income amount did not appear on the form. It used to be that the amount before the required adjustments for SE taxes and employer contributions was all that appeared. Has that changed his year?

[Laura Harrington]

I haven't looked a the2009 Schedule K-1, but in past years the net earning income amount did not appear on the form. It used to be that the amount before the required adjustments for SE taxes and em.ployer contributions was all that appeared. Has that changed his year?

[/quote

I think this is a terminology issue. If I recall correctlly the K-1 refers to line 14 as self-employment income. Line 31 of the Schedule C is referred to as net earnings.

What is on the K-1 as self-employment income and Schedule C as net earnings is not net of SE taxes. It may be net of contributions made on behalf of the common law employees (depends on if it is a draft copy or the finalized form after the employer contributions have been determined). It is not net of the partner's own contributions.

I assumed the poster was aware of adjustments that have to be made to the self-employment income on line 14, code A to arrive at earned income.

[austin3515]

The net income is called "ordinary income" on the K-1's.