[tingtuzii]

I feel confused about gross income components for Self-employment Schedule C. It is tested in a Becker multiple choice question. I can’t figure out why i need to include guaranteed payment to partner from services rendered to a partnership to Schedule C gross income? I chose to put guaranteed payment to partners in Form 1040 gross income. Can someone help me out? Thank you!

[tuanxn]

Hey there,

Here's a direct link to the IRS website concerning guaranteed payments:
https://www.irs.gov/Individuals/Tax-Trails—Self-Employment-Income-8

The main distinction between self-employment (SE) income and “normal” income is that SE income pays both the employer and the employee portion of the FICA (Social Security and Medicare) taxes.

Therefore you can think of the partner as acting in both the capacity of the employer (as owner of the partnership) and the employee (providing the services). In this regards, it would make sense to include guaranteed payments as self-income employment income on Schedule C rather than on Form 1040 where the income is only subject to the employee's portion of FICA taxes.

[tingtuzii]

hi tuanxn, thank you for the reply! I got it.

[Tripin93]

Tuanxn is absolutely correct.

Motivated by JC. I do it to make God proud.

FAR: 91 July 2015
AUD: 83 October 2015
REG: 81 January 2016
BEC: 83 February 2016

[murano]

@tingtuzii
I think the answer is wrong.
https://taxmap.irs.gov/taxmap/pubs/p541-005.htm
Guaranteed payments are those made by a partnership to a partner that are determined without regard to the partnership's income. A partnership treats guaranteed payments for services, or for the use of capital, as if they were made to a person who is not a partner. This treatment is for purposes of determining gross income and deductible business expenses only. For other tax purposes, guaranteed payments are treated as a partner's distributive share of ordinary income. Guaranteed payments are not subject to income tax withholding.
The partnership generally deducts guaranteed payments on line 10 of Form 1065 as a business expense. They are also listed on Schedules K and K-1 of the partnership return. The individual partner reports guaranteed payments on Schedule E (Form 1040) as ordinary income, along with his or her distributive share of the partnership's other ordinary income.

AUD - NINJA in Training
BEC - NINJA in Training
FAR - 95
REG - 99

Hi 🙂

[Author]

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