Guaranteed Payments to Partners on 1065

[Robin Johnson]

I am having trouble with the M-2.  My net income per books is overstated by the guaranteed payments.  Is there somewhere in ATX where I can check a box to deduct the guaranteed payments?

 

[grandmabee]

they are deducted on page one of 1065 and also on your P & L  so shouldn't be a problem.  Did you put on 1065? line 10

[Robin Johnson]

Thank you for your reply.  Yes.  They are on line 10 of page 1.  So net income per books on the M1 is correct but then line 3 of the M1 has the Guaranteed payments listed as an M-1 adjustment.  Is that right?  That's what's messing up my return.

 

[Lee B]

Is your client an operating business or is all of the Income and Expenses entered on Form 8825?

[Robin Johnson]

It's an operating business

 

[JackieCPA]

I had the same problem, generally on the M2 it uses the net income per books to reconcile with equity. But this year it was using it after the adjustments - I checked with the 2020 returns and it is pulling a different number to the M2 in 2020 vs 2021. I overrode for now - haven't actually filed it yet as I was hoping the problem will be corrected. 

[DevM]

Based on the revised instructions you also need deduct the GP on Line 7 of M-2

See IRS instructions:

M-1 Line 3. Guaranteed Payments Include on this line guaranteed payments shown on Schedule K, lines 4a and 4b (other than amounts paid for insurance that constitutes medical care for a partner, a  partner's spouse, a partner's dependents, and a partner's children under age 27 who aren't dependents).

M-2 Line 7. Other Decreases (Itemize) Enter on line 7 the sum of all other decreases to the partners' tax-basis capital accounts during the year not reflected on line 6. Also, if the aggregate net positive income from all section 743(b) adjustments reported on Schedule K, line 11, “Other income (loss),” was included as an increase to income in arriving at net income (loss) on line 3, report that amount as a decrease on line 7. For these purposes, “net positive income from all
section 743(b) adjustments” means the excess of all section 743(b) adjustments to  income allocated to the partner that increase the partner's taxable income over all section 743(b) adjustments to income that decrease  the partner's taxable income. Likewise, if line 3 includes income from guaranteed payments reported on Schedule K, line 4c, include that amount as a decrease on line 7

[DevM]

In my opinion ATX is working fine as far as adding GP to M1 Line 3, however it should also deduct on Line 7 of M2 unless they left it out due to some other adjustments needed 743(b)..?

[DevM]

I have opened an issue with ATX add GP on M2 Line 7. will post the response.

 

[Robin Johnson]

Thank you!  I did end up putting on line 7 of the M2.  I also opened a case.  I blew a half a day trying to get the program to do this properly.

I also sent the service rep this link to try to explain to her what the issue was:

support.cch.com/kb/solution/000119778/119778

ATX needs something like what here.  A check box so that the program does this correctly.  Thanks to all of you for helping me out.  I'm a sole practitioner and I'm very grateful to have people like you supporting this community!  Have a great tax season!

 

[DevM]

Looks like ATX has fixed the issue with current release of updates.