If a partner is performing personal services for a partnership and takes distributions from the partnership akin to a contract laborer for a few months and then begins taking a salary from the partnership, would the amount taken as a contractor be reported on 1099-MISC in full, in the amount in excess of basis or not at all?
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It would be guaranteed payments. Look at TTB pag 20-4,20-5 -
If the payments were taken by all partners in proportion to their ownership percentages, they are merely distributions without tax consequence, subject to basis limitations. Otherwise, the payments are considered guaranteed payments and are subject to SE tax. The further payments he received are either distributions or guaranteed payments, but they are not "salary." Partners can't take salaries. Distributions and guaranteed payments are reported on Sch K-1. There should be no 1099-MISC.Originally posted by UnregisteredComment
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Distributions
Little correction here. Distributions in a partnerhsip (not LLC) are subject to SE as well as GP. Only in a LLC you have the option to treat some payments as distributions as you do in S-Corps.Comment
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Distributive shares of partnership income are subject to SE for general partners, not limited partners. Distributions from the partners' capital accounts are not subject to further taxation, unless basis is exceeded. All guaranteed payments are subject to SE tax. With regard to LLCs, It may be true that members are treated like limited partners, except that there is generally a requirement that there be a managing member, who may be considered a general partner for taxation purposes.Originally posted by GabrieleComment
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Big correction here. General partners pay SE on the trade or business income and GP flowing to them on their K-1. They do not pay SE on withdrawals from capital accounts. They can owe SE even if they received nothing from the partnership during the year.Originally posted by GabrieleComment
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wrong terminology
Ooops. Sorry, I used wrong terminology. I agree. Distribution by itself are not taxable but the income, which flows through to the partners over and above GP is subject to SE unless limited partners.
I wonder why the terminology is different for S-Corps. Basically the same thing happens, income flowing through. But in S-Corps. it's distribution that are taxable.Comment
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Ooops again Gabriele
Sorry Gabriele but you have another Ooops! S-corp profit/income regardless of distributions are taxable just like the partnership but not taxable for SE tax. S-corp distributions are tax-free unless they exceed stock basis. :-)Comment
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Old Jack
Thanks Jack. Next time I look in the TTB to get it short and simple and right in writing. Doesn't help just knowing what is right to do and then mixing up all terms.Comment
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