Independent contractor for his own partnership

[Kea]

Client is a partner in an LLC. He now wants to do contract work at a different rate than he gets "paid" for his ownership. [His use of quotes.] Is there any reason he can / cannot get paid on both a 1099Misc and K1 for the same company?

Are there any pros / cons / concerns dealing with this scenario for him to worry about?

Thanks

[Margaret CPA in OH]

I have had a contractor (S-Corp) do remodeling work on rental property owned by an LLC of which he and his wife are the members. Invoices were properly prepared, 1099's issued where needed, prices were reasonable for an outside company. I saw no problem with this. The wife wasn't always thrilled that husband was working so many more hours but he did most of the work on weekends when not working at other jobs.

[Lion EA]

Guaranteed Payments for his work and K-1 for his share of the profits. The partnership agreement should spell all that out or be amended to cover the new situation. The GP will be on the K-1; no 1099.

[Jack from Ohio]

Agree with Lion. The direct answer to your question is no, he cannot do what he is asking.

[Margaret CPA in OH]

I believe the difference here is that, in my client case, the member/partner was incorporated, received wages as an employee, and also used subs at times. He/S-corp properly invoiced the LLC and payments were made to the corporation. If the op situation was simply an unincorporated sole proprietor trying to wear two hats, then I agree with Lion and Jack from Ohio.

[Kea]

Thanks. Something didn't seem right to me, but I don't deal with many partnerships.

[kcjenkins]

Right, he can have different 'rates' he gets paid for different types of work, but it's just on different lines of the K-1. No 1099s.

[taxxcpa]

I would agree that it is improper. However, I had a client that did it that way, so I put the 1099 income on schedule C.

The result was the same as if it had been done properly--same SE tax and same total income.

[jainen]

>>The result was the same<<

It wouldn't necessarily be the same. Suppose the partnership had an overall loss that was limited by partner's basis or at-risk rules. By reporting earnings/expenses on a Schedule C instead, profit could still support an IRA deduction or SE health insurance premium, while a loss could offset wages or investment income.

[kcjenkins]

Yep, Jainen has it right there. While it sometimes comes out the same, it is still wrong, and it may indeed make a serious difference. In such a case as taxxcpa had, I might have done it that way for that one year, but I'd only have done it if I got the client to agree to correct how he handled it for all future years, explaining as Jainen did so well that it might not always be the same.