Guaranteed payments

[DaveinTexas]

I know that a guaranteed payment can create a loss for the partnership. Also, I know that the guaranteed payment is subject to SE tax.

My question is: Does the ordinary loss on a K-1 for a limited partner reduce the amount of the guaranteed payment subject to SE tax.

Example: Limited Partner
K-1 ordinary loss: $20,000
Guaranteed Pmt: $50,000

Is $30,000 the amount subject to SE tax from the guaranteed payment? Or does the ordinary loss only reduce the federal income tax owed on the guaranteed payment?

TIA---send me the bill.

[Gretel]

Looks like you are hoping to reduce SE but I am pretty sure that SE needs to be computed on $50,000. That is the whole point of having part of the income as GP and part as flow through income to minimize SE. In your case he should have taken less GP and might still be able to do so?

[Bees Knees]

You can only reduce SE tax by Line 1 K-1 losses if Line 1 K-1 profits are subject to SE tax. If the limited partner is not subject to SE tax on Line 1 K-1 profits, then SE tax will not be reduced by any Line 1 K-1 losses.

[DaveinTexas]

Thanks Bees

You can only reduce SE tax by Line 1 K-1 losses if Line 1 K-1 profits are subject to SE tax. If the limited partner is not subject to SE tax on Line 1 K-1 profits, then SE tax will not be reduced by any Line 1 K-1 losses.

That's exactly what I thought, but I could not find any reference materials. I'm sure it is in the K-1 instructions somewhere; I've tried everywhere but there. Thanks again.

[Bees Knees]

IRC §1402(a)(13) says a limited partner's share of profits or losses from a partnership, other than guaranteed payments, are are excluded from the computation of SE taxable income.

It says it right in the code.

[cpadan]

[QUOTE=DaveinTexas;45381] Also, I know that the guaranteed payment is subject to SE tax.QUOTE]

And that is true only if the GP is for services performed (not for use of capital).

That is also in Code Sec. 1402(a)(13) .

[DaveinTexas]

I shouldn't have made that quick assumption

[QUOTE=cpadan;45392]

Also, I know that the guaranteed payment is subject to SE tax.QUOTE]

And that is true only if the GP is for services performed (not for use of capital).

That is also in Code Sec. 1402(a)(13) .

I seriously need to brush up on my partnership skills.

Thanks Bees and Dan and others.