How to calculate Self employment income

[KarenMM]

Hello all - I lurk alot, and search alot, but have hardly ever posted... I am slowly being brought into this century technology-wise! Thanks for all the help in the past! Here's my post:

I have a husband/wife LLC partnership that runs a campground... mostly seasonal sites, which "rent" for the whole summer. 10% wife is limited partner, so no SE income there... 90% husband runs the place (material participation, his only job) and provides other services, such as storage, winterization and snow removal, as well as a camp store, firewood, etc. The campground charges separately for each of the services above and also accepts weekend campers. Past CPA called the seasonal rents as NON-SE income, and came up with some number (which I cannot re-calculate) as self employment income to cover the "services" which were not rental in nature. The business does not separate expenses for "rental" and "non-rental" income, only the income.
Here's the questions: How would you calculate self employment income? Since they don't separate expenses (I am not sure they could), would you consider it all SE or all non-SE? Or would you use a percentage of expenses based on percentage of SE income to total income?

[solomon]

Are you

saying the CPA filed a Sch E for the seasonal rents and a Sch C for the rest? If so, I would guess the Sch C portion was calculated on the weekend campers because the rental period was 7 days or less.

[KarenMM]

No - the client spoke to the old cpa,

who tried to explain how she came to the amount she put on line 14 of the 90% husband's K-1... . how some of the income she considered rental, therefore non-self employment income, and some of the income she considered for "other services", therefore subject to self employment tax.

[cpadan]

You could have your client request a copy of the prior accountants work paper. But regardless of how it was done in the past, you are now responsible for determining how to report it.

The situation is not clear, do they lease the campground and receive the rents directly or are they paid on contract to run the campgroud?
Dan

[jainen]

a very good reason

>>use a percentage of expenses based on percentage of SE income to total income<<

That's the normal way to allocate expenses which pertain to more than one activity. Of course, some expenses will obviously pertain to only one activity, like sales tax or firewood permits.

Generally running a campground this way would be all SE income. The CPA was trying to shelter some of the income from SE tax, which I think is reasonable IF the client understands that he is not earning Social Security credits.

I would be inclined to continue the CPA's method. But first I would want a VERY good reason why the taxpayer is changing accountants.

[dsi]

This client sounds like a great candidate for an audit...mixing SE income & expenses with non SE income & expenses? Look out!