Earned Income

[austin3515]

I THOUGHT it was pretty clear that the earned income for a limited partner was calculated solely by taking into account their Guaranteed Payments, based on 1402(a)(13). But the question I am now struggling with is that in spite of this exception, do I still need to reduce their comp by their own employer contribution (eg, ps contributions allocable to their own account)?

1402(a)(13) says they can disregard the distributive share of the income of the partnership, but their own contriubtions would not have been deducted on their anyway, so I'm not sure they fit into the exclusion?

[Bird]

If they are taking the ps deduction on their 1040, and I assume they are, then you have to reduce their compensation accordingly.

[austin3515]

Thanks Bird! Anything you can provide in the way support would be greatly appreciated. Was this part of a Q&A or something? Or is my interpretation of 1402(a)(13) on the money?

[Bird]

I'm just going by "taxation logic." If you told me they were deducting the ps contribution on the partnership return, I would say not to reduce comp by the contribution. With partnerships, close is good enough. I've seen accountants do things differently enough (even the same partnership, same accountant, different year/different treatment) to think that it's more important to follow consistency of taxation than to try to make it "right" from beginning to end.

[Calavera]

Look at the IRS Publication 560 for self-employed individual and net earnings from self-employment. The following discussions may also help:

http://benefitslink.com/boards/index.php?s...c=39548&hl=

http://benefitslink.com/boards/index.php?s...c=41185&hl=

http://benefitslink.com/boards/index.php?s...c=42792&hl=

http://benefitslink.com/boards/index.php?s...c=42872&hl=