K1 for law partner

[jasdlm]

Client joined a new firm.  They call her a 'non-equity' partner.  Received a K1 for $500k in 'ordinary income' and $800 in 'guaranteed payments'.  Limited partner box is checked.  Box 14, Self employment income, is the $800.  However, there's a 401(k) deduction of $35,000.  I feel like I'm crazy ... the $500k is, of course, SE income, but I have to report the K1 incorrectly (change box 14 to $500k plus $800) in order to get the SE to calculate since she's a limited partner.  Owes much more money that way, even though the 401(k) doesn't flow through unless there's SE income.  What am I missing?

[Lee B]

This Tax Advisor Article should be helpful where they discuss the meaning of a"Limited Partner" in name only:

I give the law firm high marks for creativity but after you read this article you should file an extension

and you will need to have a serious discussion with your client .

https://www.thetaxadviser.com/issues/2024/may/limited-partners-and-self-employment-tax-a-new-test/

[jasdlm]

I agree, but should I have her pay in as if it is SE income (how can it not be?).  Really ... am I missing something?  I feel really stupid right now.  About this time of year, I usually start thinking I'm not qualified to do this.  Does anyone else have those types of thoughts when something like this floats across your desk?

Maybe I'm not qualified to do this ...

[Patti in Upstate NY]

Almost all of my (rare) posts start with "I don't often chime in, but I appreciate your knowledge."

At least once a day during tax season, I tell myself that I have no business doing taxes because I'm no longer qualified.  Times have changed.  Laws have changed and I took the wrong classes to try to stay up to date. 

I've done this for 38 years and I'm good at it.  Until the weird thing hits my desk and I wonder if I'm smart enough to figure it out.  

It's April 14 and I'm on the edge.  But you're not alone and you're not stupid.   If you are?  Then so am I.

I can't wait for this time tomorrow.....

 

 

[Lee B]

30 minutes ago, jasdlm said:

I agree, but should I have her pay in as if it is SE income (how can it not be?).  Really ... am I missing something?  I feel really stupid right now.  About this time of year, I usually start thinking I'm not qualified to do this.  Does anyone else have those types of thoughts when something like this floats across your desk?

Maybe I'm not qualified to do this ...

You have to follow the K -1 until you can discuss the SE issue with your client.