Guaranteed payments to a partner

[Belgarath]

So how do you deal with this? According to Sal, these guaranteed payments, under some circumstances, ARE taken into account in computing net earnings from self-employment. Most calculations I've ever seen just use the K-1 Line 14 amount, minus 179, unreimbursed partnership expenses, oil & gas depletion.

Because these amounts are "taken into account" - does that mean the CPA has factored them in already, if applicable, when arriving at the Line 14 number?

These are often pretty large amounts.

[BG5150]

I think they should already be in there in line 4 in Part III.

[CuseFan]

From IRS Publication 541 - Partnerships

Guaranteed Payments

 

Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. This treatment is for purposes of determining gross income and deductible business expenses only. For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Guaranteed payments are not subject to income tax withholding.

The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. They are also listed on Schedules K and K-1 of the partnership return. The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income.

Guaranteed payments made to partners for organizing the partnership or syndicating interests in the partnership are capital expenses. Generally, organizational and syndication expenses are not deductible by the partnership. However, a partnership can elect to deduct a portion of its organizational expenses and amortize the remaining expenses (see Business start-up and organizational costs in the Instructions for Form 1065). Organizational expenses (if the election is not made) and syndication expenses paid to partners must be reported on the partners' Schedule K-1 as guaranteed payments.

[Kevin C]

I ask the CPA what earned income number will be used for the SE tax calculation and whether the number given has already been adjusted for the employer contributions for the employees. Sometimes the answer you get is not what you expected.