PC now an LLP

[ratherbereading]

A CPA firm went from being a PC to being an LLP during 2017.  One partner bought out the other partner and the partner who was bought out has retired.  The remaining partner received compensation that will be on a W2 for 2017 for him, but also had some income on a K1.  I thought I read somewhere that in this case only the W2 compensation is  used for testing, employer contribution calculations, etc., but now can't find anything on it.  Is that true?

Thanks!

[Mike Preston]

No.

[C. B. Zeller]

Karoline - 

What you might be thinking of is for a shareholder-employee in an S-corporation, they receive income both from their services as an employee (W-2) and from their investment as a shareholder (K-1). For that scenario you would only use their W-2 compensation.

For partnerships, including LLPs, compensation is defined as net earned income, which is calculated in the usual way: K-1 earnings less one half of self-employment taxes, yadda yadda. Be certain to account for the portion of FICA taxes that were paid on their W-2 in order to accurately calculate the self employment taxes.

[ratherbereading]

Thanks!!

[imchipbrown]

Who's the Plan Sponsor?

[ratherbereading]

58 minutes ago, imchipbrown said:

Who's the Plan Sponsor?

The remaining partner