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What do I need to do if I get a K-1 from an LLC that shows

self-employment loss in box 14A...
What do I need to do if I get a K-1 from an LLC that shows self-employment loss in box 14A? Can I still take the ordinary business loss shown on line 1? What is the meaning of the self-employment loss? What triggered it to appear in the K-1?
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Answered in 2 minutes by:
9/9/2013
Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
Verified

Stephen G. :

Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.

Customer:

hi

Stephen G. :

Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.

Customer:

You said that.

Stephen G. :

The self-employment loss is simply what your self-employment tax (social security tax) would be based upon if it were a positive number.

Customer:

So do I ignore it if it is a loss?

Stephen G. :

It has nothing to do with the deductibility of the loss on line 1.

Stephen G. :

Do you have any other self-employment income from any other source?

Stephen G. :

What is the form number of the K-1 you received?

Customer:

Probably not but possibly. Why do you ask?

Customer:

checking on form number....

Customer:

It just says Schedule K-1, form 1065

Stephen G. :

Because if you did, you may have to combine that loss with other income in order to compute self-employment income. Are you self-employed?

Customer:

I work for various companies that I am a part owner in.

Stephen G. :

OK, so the LLC is reporting as a partnership;

Customer:

Yes. The LLC is reporting as a partnership.

Stephen G. :

Are you an employee of those companies; ie do you receive a W2?

Customer:

I receive a W2 from a C corp that I am an employee and partial owner of.

Customer:

Is there any downside to being more than a 50% owner and filling out Schedule B-1, Part II on form 1065?

Stephen G. :

Downside in what way, you aren't completing a partnership return are you?

Customer:

I am and am trying to figure out what the significance of loss being identified as self-employment loss in line 14 of the K1. I have not seen it before and cannot figure out why it is outputting that or what I need to do with it on my 1040.

Stephen G. :

You don't need to do anything with it on your 1040. You are getting it because you must be a general partner.

Customer:

Downside in the sense that it might be easy to arrange that no one is more than a 50% owner and I am wondering if there is any reason to do that. I was wondering if the change of ownership to over 50% had anything to do with the appearance of the self-employment line.

Stephen G. :

What does the LLC do?

Customer:

investment adviser

Stephen G. :

No. That wouldn't trigger it, it depends upon the activity of the LLC.

Customer:

OK. So is there any downside, other than having to fill out the form?

Customer:

Is there any effect at all of becoming more than a 50% owner?

Stephen G. :

Any change in the ownership of the LLC, would trigger a capital gain or loss computation.

Customer:

Why is there a section to identify 50% or greater owners?

Customer:

... if it has no effect on anything?

Stephen G. :

Just disclosure as far as control; there could be certain transactions or related party activity that could be disallowed, but from a practical standpoint, there really isn't any downside.

Customer:

OK. Thank you for the help.

Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 7,211
Experience: Extensive Experience with Tax, Financial & Estate Issues
Verified
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Category: Tax
Satisfied Customers: 7,211
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