PARTNER GUARANTEED PAYMENTS: IRC SECTION #707(c)
Guaranteed payments are those payments made to a GENERAL partner for services rendered or for the use of capital that are determined without regard to the partnership's income.
Partnership's Tax Treatment:
1-Deducted as an ordinary business expense on Form 1065, Page #1, Line #10.
2-Reported on Form 1065, Page #4, Schedule K, Lines #4a and or #4b and #4c.
3-Reported on recipient partner's Schedule K-1, Box #4a and or #4b, and #4c.
4-Not subject to any payroll withholding taxes.
5-Partnership does not issue either a W-2 or 1099 Misc Income tax form to the recipient partner.
Partner's Tax Treatment:
1-General partners are neither an employee or independent contractor of their partnership (see 5 above).
2-Guaranteed payments are deemed taxable ordinary income subkect to self-employment taxes.
3-Reported on Schedule E, Page #2, Form #1040 AND Schedule SE Self-Employment Tax.
4-Partner will need to consider making quarterly estimated income tax payments to the IRS to avoid a potential large tax bill and IRS penalties and interest charges that may result.
Guaranteed Payments Resulting In A Partnership Net Loss:
If guaranteed payments result in a partnership net loss in which the partner shares, the partner must report the full amount of guaranteed payments as described above.
The partner separately takes into account his/her allocable distributive share of the partnership net loss and deducts the loss to the extent that the partner has sufficient outside basis and at-risk amounts available.
Health Insurance Premiums:
Health insurance premiums paid by a partnership on behalf of a partner, for services rendered as a partner, are treated as guaranteed payments.
A partner who qualifies can deduct 100% of the health insurance premiums paid by the partnership on his or her behalf as an above the line deduction (as an adjustment to income) the same as a self-employed person is allowed. (Self-Employed Health Insurance Deduction).
CALL NOW 561-746-1926 or 561-339-8102 if you have an questions or concenrs or would like to schedule a FREE, Confidential, No-Obligation Tax-Saving Consultation.