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Is K-1 income from an LLC unearned income for a student

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Is K-1 income from...

Is K-1 income from an LLC unearned income for a student under age 24?

Accountant's Assistant: The Accountant will know how to help. Please tell me more, so we can help you best.

Full time student age 22. have k-1 income from an llc as passive income. is it earned income subject to my parents' tax rate?

Accountant's Assistant: Is there anything else important you think the Accountant should know?

Have earned income of 12,400

Submitted: 1 month ago.Category: Tax
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Answered in 3 minutes by:
3/10/2018
Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago
Carter McBride
Carter McBride, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 1,039
Experience: Adjunct Professor
Verified

Hey! I'm Carter, I'm a CPA and can help you out.

Its kind of a confusing issue, here's what the IRS says:

If the child is a sole proprietor or a partner in a trade or business in which both personal services and capital are material income-producing factors, earned income also includes a reasonable allowance for compensation for personal services, but not more than 30% of the child's share of the net profits from that trade or business (after subtracting the deduction for one-half of self-employment tax). However, the 30% limit doesn’t apply if there are no net profits from the trade or business. If capital isn’t an income-producing factor and the child's personal services produced the business income, all of the child's gross income from the trade or business is considered earned income. In that case, earned income is generally the total of the amounts reported on Form 1040, lines 7, 12, and 18; Form 1040A, line 7; or Form 1040NR, lines 8, 13, and 19.

So, if the kid is doing any work, you can allocate some of the income as earned income. Since it is a passive investment, it will most likely be considered unearned income and taxed at the higher rate.

Let me know if you need anything else. If not, please leave a rating. Thanks!

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Tax Professional: Carter McBride, Certified Public Accountant (CPA) replied 1 month ago

Hey! Just wanted to follow up to see if you needed anything else. If not, please leave a rating so I can get credit for helping you out. Thanks!

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