1065 and guaranteed payments

[JenMO]

2 partners, one works in the business and receives a GP. other one works, but no GP. they both split the proceeds or losses 50/50. Is the guaranteed payment put on the 1065 as an expense to the business and also a guaranteed payment on the K-1 to that partner? Can't get this straight in my head.

[JenMO]

the partner that works does extra cleaning. last year I issued her a 1099 and did not give her a guaranteed pymt for that amount. But an auditor said that since she was a partner, she didn't need a 1099. but now I'm confused on how I deduct?

[TaxGuyBill]

The Guaranteed Payments are reported on Line 10 of the 1065, which reduces the Partnership's "ordinary business income". No 1099 is issued because it goes in box 4 of the K-1.


For example, let's say the company had $100,000 of income, and no other expenses. Guaranteed Payments to Partner #1 are $20,000.

Page one of the 1065 will show $100,000 on Line 1 (and Line 8), $20,000 on Line 10 (and Line 21), and $80,000 on Line 22.

Partner #1's K-1 will show $40,000 in box 1, $20,000 in box 4, and probably $60,000 in box 14.

Partner #2's K-1 will show $40,000 in box 1, and probably $40,000 in box 14.


Does that clarify things?

[JenMO]

partner does laundry for business and gets paid $2000. I think that is a guaranteed payment for services. Does that $2000 become an expense to the partnership as a line item on line 20, other expenses? or does the $2000 guaranteed payment make it an expense, without a line item. WHen I gave her a 1099 for laundry, I used as an expense, but making it a guaranteed payment doesn't?

[kathyc2]

partner does laundry for business and gets paid $2000. I think that is a guaranteed payment for services. Does that $2000 become an expense to the partnership as a line item on line 20, other expenses? or does the $2000 guaranteed payment make it an expense, without a line item. WHen I gave her a 1099 for laundry, I used as an expense, but making it a guaranteed payment doesn't?

Guaranteed payments are an expense, same as a 1099. Partners should not receive a 1099, and they also can not receive wages. Think of GP as equivalent to a salary of an S shareholder/employee.

[TAXNJ]

Can that be

Guaranteed payments are an expense, same as a 1099. Partners should not receive a 1099, and they also can not receive wages. Think of GP as equivalent to a salary of an S shareholder/employee.

Can that be to "Think of GP as equivalent to a salary of an S shareholder/employee."

Guaranteed payments are not subject to a state's unemployment, disability & family leave taxes whereas
a S shareholder/employee would be. No?

[kathyc2]

Can that be to "Think of GP as equivalent to a salary of an S shareholder/employee."

Guaranteed payments are not subject to a state's unemployment, disability & family leave taxes whereas
a S shareholder/employee would be. No?

The more appropriate word should have been concept instead of equivalent. GPs are a way to compensate for time and effort when not equal for all partners.