Earned Income Calculation

[Guest Boots]

Good Morning,

I'm a lot over my head with this topic...I tried to read the code sections regarding earned income; self employed individuals and my eyeballs just glazed over. So, I've come to those who can help me with little words and clear meaning for a simple mind like mine.

This LLC has a pay arrangement with one of the partners that is getting me tripped up. The partner receive a K-1 but they also receive a 1099 for commissions. Can the K-1 and the 1099 be combined together to get to their eligible compensation for deferrals?

I appreciate all the help and any comments offered.

[Bird]

That's a good question. I think the technical answer is that, unless the partners each adopt the partnership's plan as adopting employers (i.e. the way this is being treated, each partner has his own commission-based business in addition to his share of the partnership), you ignore the commissions. But then the question arises, is this pay arrangement legitimate, and can/should the individual businesses adopt the plan? It sounds like if all of the partners who get commissions own 100% of the partnership, then you have a controlled group and it might be easiest and best to just have all of the individual businesses adopt the partnership plan, and count the 1099 income.

Whether the pay arrangement is legit or not is another matter. But if there is no tax avoidance behind it, and I don't think there is, I'm not sure it's a big deal.