Tax

Have a tax question? Ask a tax Expert

Ask an Expert,
Get an Answer ASAP!

I have a 401k deduction question regarding k-1 imcome and…

Customer Question
I have a 401k...

I have a 401k deduction question regarding k-1 imcome and basis

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

I am a 5% partner and have $10,000 of ord income and $200k of guaranteed payments. I withheld $18k in 401k and the tax software is limiting my 401k deduction to the $10k of basis I have

Submitted: 3 months ago.Category: Tax
Show More
Show Less
Ask Your Own Tax Question
Answered in 10 minutes by:
3/25/2018
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,643
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified

Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

Ask Your Own Tax Question
Customer reply replied 3 months ago
ok
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

It's not basis that's the issue here it's the definition of earned income for retirement plan purposes, as it relates to partners.

...

Not infrequently, I see partners or LLC members (of LLCs treated as partnerships) make salary deferral contributions during a plan year based on their guaranteed payments and then find out after the end of the plan year (assuming the plan and the partnership have the same year-end) that the partnership or LLC has a net loss. Accordingly, they don't have earned income for purposes of the retirement plan and cannot make any salary deferral contributions or receive any employer contributions.

...

For purposes of the entity's retirement plan, the earned income of a self-employed individual is his or her net earnings from self-employment as defined under IRC section 1402(a) with several modifications. Under section 1402(a), net earnings from self-employment are the business' gross income less allowable deductions from that income.

Ask Your Own Tax Question
Customer reply replied 3 months ago
I have plenty of earned income, however since the 401k deduction is listed under other deductions, its being limited by basis. Is this correct?
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

Not by basis but by the ordinary income of the partnership ... basis has nothing to do with 401(k) contributions ... although it IS a limit to the tax benefit of operating losses.

...

What's happening here, is, becasue a partnership is technically making the contribution FOR the partner, becasue the guaranteed payments have eaten up so much of the profit, there's only the 10000 of ordinary income that can be used as compensation basis for the contribution.

...

Goes basi too the definition of compensation for self employed individuals (sole proprietors, partners, LLC member not taxed as corporations). The business profit is the compensation.

...

You would have a larger contribution by taking less in guaranteed payments and more in profit allocation.

Ask Your Own Tax Question
Customer reply replied 3 months ago
ok
ty
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

SO sorry to be the messenger, You've very welcome.

...

Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

Ask Your Own Tax Question
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

SO sorry to be the messenger, You've very welcome.

...

Ask Your Own Tax Question
Tax Professional: Lane, JD, CFP, MBA, CRPS replied 3 months ago

(sorry ... paste my intro in there again) meant to say ......

...

Your positive rating … (by using those the stars on your screen, and then clicking “submit”) …is thanks enough.

Otherwise I receive no compensation for the work here.

...

Thank you!

Lane

Ask Your Own Tax Question
Was this answer helpful?

How JustAnswer works

step-image
Describe your issueThe assistant will guide you
step-image
Chat 1:1 with a tax professionalLicensed Experts are available 24/7
step-image
100% satisfaction guaranteeGet all the answers you need
Ask Lane Your Own Question
Lane
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,643
14,643 Satisfied Customers
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986

Lane is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,338 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,512 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

PhillipsEsq.

PhillipsEsq.

Attorney-at-Law

59 satisfied customers

B.A., M.B.A, J.D.

Robin D.

Robin D.

Senior Tax Advisor 4

15,569 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,655 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

< Previous | Next >

Related Tax Questions
How does this work. I have a partnership. two partners, no
i have a partnership. two partners, no employees. we have a 401k plan. i have most of my income coming in as Guaranteed Payments. I did an elective deferral of $18k from this income. On the K-1, to me the correct treatment is for the Gauranteed Payments to all be included in Box 4, and for the 401k elective deferral to be reported in Box 13 code R. However, if this is done, our CPA tells me that my partner's capital account analysis (Part II line L) gets messed up with a double-deduction of the 18k. The current year decrease ends up counting the 18k twice. What is the proper treatment of this on the K-1? … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am a member in a LLC. My K1 shows losses in box 1 but I
Hi,I am a member in a LLC . My K1 shows losses in box 1 but I also got guaranteed payment in the amount of $20K (box 4) . Does the guaranteed payment are subject to self employment tax? My partner say… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
If I have an amount on form K-1 (1065) box 13M for health
If I have an amount on form K-1 (1065) box 13M for health insurance. Does that get deducted on form 1040 line 29?From a tax perspective my self employment income is higher by this amount but the amoun… read more
Lane
Lane
JD, CFP, MBA, CRPS
14,643 satisfied customers
I have a couple of questions on how solo 401k contributions
I have a couple of questions on how solo 401k contributions to partner need to be entered on partnership 1065 form … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I'm trying to figure out how a partnership "deducts"
I'm trying to figure out how a partnership "deducts" contributions to a partner's retirement plan … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am helping a friend who is a partner in a partnership to
Hi, I am helping a friend who is a partner in a partnership to prepare his 1040 tax return.In 2016, the partnership paid for my friend medical insurance premium. These amounts are listed on his K-1 as… read more
ABC Accounting Group
ABC Accounting Group
Bachelor\u0027s Degree
848 satisfied customers
My client has LLC (partnership tax treatment). Based on the
My client has LLC (partnership tax treatment). Based on the operating agreement one of his partners needs to be reimbursed for health insurance. 1. In 2015 partnership did not have any income (only ex… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a K1 from a partnership that shows an ordinary loss.
I have a K1 from a partnership that shows an ordinary loss. The partner however has no invested cash or property just knowledge. How do I report on return… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Hi,A few questions on a partnership (hope its not too much):1)
Hi, A few questions on a partnership (hope its not too much): 1) Capital and basis: are basis and capital different? does a personal loan by a partner which was contributed to the business increase th… read more
jgordosea
jgordosea
Enrolled Agent
Bachelor's Degree
2,885 satisfied customers
I am calculating a domestic production deduction for a partnership.
I am calculating a domestic production deduction for a partnership. certain expenses do not appear on page one of form 1065 but are taken directly to schedule K-1. Such as section 179 deduction, guara… read more
Megan C
Megan C
Certified Public Accountant (CPA)
Master's Degree
8,655 satisfied customers
When a partners draw exceeds the basis he has in the company,
When a partner's draw exceeds the basis he has in the company, how is that reported on the K-1? In "other income?" And coded as? Thank you in advance for any help you can provide me.… read more
jgordosea
jgordosea
Enrolled Agent
Bachelor's Degree
2,885 satisfied customers
LLC partnership has 401-k plan. Partnership pays $10k as a
LLC partnership has 401-k plan. Partnership pays $10k as a salary deferral. The $10k would be reflected as a guaranteed payment and on line 13(code R) of the K-1. Am I correct>?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
At the beginning of 2013 I formed an LLC with one additional
At the beginning of 2013 I formed an LLC with one additional member (as such, we are a categorized as an LLC partnership). My questions relates to our tax situation. First, we do NOT have any employee… read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
15,569 satisfied customers
I am preparing a 1065 - Among 6 of the members , I need help
I am preparing a 1065 - Among 6 of the members , I need help with 2 of the members -2 couples have their ownership and MR & Mrs as tenants by the entirety. I know that each spouse of both couples will… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I am setting up an LLC with a partner in WA. I am investing
I am setting up an LLC with a partner in WA. I am investing 200K and have 95% equity and he has 5%. I will not be taking a salary, whereas he will (approx 140K/yr). What is the best way of structuring… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Is it preferable to initially fund a company as a loan or as
Is it preferable to initially fund a company as a loan or as a basis in the company? (to give context, it is a multi-member LLC (4 partners) but only one person (me) is contributing funding while all … read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Can a person contribute to a 401K with payments received through
Can a person contribute to a 401K with payments received through "guaranteed payments" from his Partnership… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have paid myself through my llc but have not reported those
I have paid myself through my llc but have not reported those wages to the irs. The llc files as a partnership. How do I show these payments on my personal tax return? Also how do I show payments on t… read more
Bizhelp
Bizhelp
Certified Public Accountant (CPA)
Bachelor's Degree
638 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x