K-1 question

[Kea]

Client has a K-1 for a partnership he is involved in. There is a $300 loss entry on line 11. The amount was what was paid as a Xmas bonus to the employee. Where does this get entered on the Sch. E? The activity is non-passive.

The K-1 worksheet in TaxWise (oops - TRX) says to enter it manually.

Thanks!

[RoyDaleOne]

I guess because the partner's participation determines if the activity is passive or non-passive as to that partner.

In addition, the activity may have different income tax treatment for different partners

[Kea]

Partner is non-passive. There are 2 partners and everything is 50 / 50. Also there is no code listed with the line 11 amount.

[Kea]

I got the 2007 tax return. It looks like the previous guy put it on the passive activity loss form 8582 (worksheet 3). Then he took that to Sch D as a short term PAL.

Is that reasonable?

I think I would rather add it to the ordinary business loss on line 28 column (h). I'm not sure why the Xmas bonus should be treated any differently than the salary or any other expense.

Any help is appreciated.

[Gail in Virginia]

I'm not sure why the Xmas bonus is treated different unless it was treated differently to the employee. Was it paid in cash and not reported as income on the employee's W-2? If they are trying to pay it to the employee without him/her being taxed on it, can they deduct it at all?

[Kea]

Gail - that's a good point. I'll ask about that.