partnership income, pension deductions

[Gary]

the information below may make it clear that it may be necessary to consult with CPA of plan sponsor

with that said, i have data for a partnership:

this is a takeover case

I am not sure if the partnership is taxed as a partnership or an S corp (as of yet)

The two partners have equal shares (though I think it is 46% each) of company.

One of the partner's page 1 of 1040 for a prior year is as follows:

W-2 shows 194,146 (sposue included too) where it is itemized that of that amount a total of 63,235 is w-2 from the partnership. This additional W-2 from partnership only appears this one year.

My understanding is that if a partner receives W-2 then it may be taxed as an S corp

The 1040 shows scedule C business income of 11,511 (this may have no relevance to the partnership)

Line 17 of 1040 (which includes income from Schedule E from partnership) shows income of 174,784. If it is taxed as a partnership then this may include non passive income and/or passive income, guaranteed payments, and perhaps self employment income (all part of schedule k-1). If it is an S corp than I believe this is all pass through income not earned income for pension purposes.

If I add the W-2 comp from company and the Schedule E income the total is 238,019. The SE deduction is 4,869 (being so low it makes me think that some of the income may be passive income) and the pension deduction is 115,000.

So the net income is 238,019 - 4,869 - 115,000 = 118,150. Of course I am not even sure if this is close to what the earned income should be as of yet.

The valuation for that same year shows plan comp of 111,002. Surprisingly not too different from calculation, but nontheless doesn't solve much.

And finally, my understanding of deduction allocation is that the deduction on behalf of commonlaw employees is shown on 1065 if partnership or 1120S if S corp and the deduction for the partners on their return is split 50/50 since they have equal share in partnership. And the allocation for partners can be revised if they sign an agreement to do so.

Any thoughts of above preliminary analysis?

thanks

[Gary]

additional thoughts that came to me include:

if it were taxed as an S corp then there would be no deductions on the 1040 as I see it, so it must be taxed as a partnership if partners have deductions on their 1040.

and I still think if it were taxed as a 1065 partnership, the employees' costs appear on 1065 and the final net income on 1065 is distributed to each partner.

and it makes sense if the actual cost for each specific partner were applied to their 1040, but not sure if the total cost for partners pension is divided based on ownership (i.e. if 50/50 then if total cost for two partners is 100k it would be 50k on each 1040)

thanks

[mbozek]

A partner receives a K-1 in which the firms contribution to a retirement plan for the partner is entered in box 13 code R and is deducted on line 32 of the partner's 1040. Net earnings from self employment is entered in Box 14 code A. Partner's deductible contributions to a retirement plan are subject to IRC 401© and IRC 404(a)(8) limits of no more than 25% of net earnings from self employment after reduction for retirement plan contribution in the case of a DC plan.

A shareholder in an S corp receives a w-2 showing wages for services. Contributions to a pension plan for the shareholder are deducted by the S-Corp. from its inccome on the corporate tax return subject to the limits of IRC 404(a). Shareholder does not deduct pension contributions on the 1040.

Are the pension contributions/deductions claimed on line 32 of the 1040?

[Gary]

the pension contributions for the partners are claimed on the 1040.

what is odd is that the partners also received some w-2 from partnership.

i don't think they should.

thanks much.