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I am preparing the K-1 for my LLC, and I used online tax…

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I am preparing the...

I am preparing the K-1 for my LLC, and I used online tax software (TaxAct.com). I feel fairly comfortable with the process, but my partner's K-1 is showing two numbers in box 14 (Self-Employment Earnings), both an amount for A-Net Earnings from self employment ($1,000), as well as C-Gross Non-farm income ($215,000). He has never seen the 14C reported on his K-1 in prior LLC's he's been a part of, and wonders if I've made a mistake (likely). Will the 14C ultimately have to be reported by him as self-employment income? Or will he just report the 14A amount when he does his own taxes? Thanks

Accountant's Assistant: The Accountant will know how to help. Is there anything else important you think the Accountant should know?

Business structure is a manager-managed LLC

Submitted: 3 months ago.Category: Tax
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3/29/2018
Tax Professional: ABC Accounting Group, Certified Public Accountant (CPA) replied 3 months ago
ABC Accounting Group
ABC Accounting Group, Certified Public Accountant (CPA)
Category: Tax
Satisfied Customers: 889
Experience: Business Consultant/Accounting Manager
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Hi. Great Question. I can help you.

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Tax Professional: ABC Accounting Group, Certified Public Accountant (CPA) replied 3 months ago

In the past, this line (14c) was not calculated and the preparer had to enter the amount. The amount is now calculated as follows:

  • Line 8, Total Income, Page 1, Form 1065 (divided by ownership percentage of general partners vs limited partners)
  • plus Line 3a, Other gross rental income (loss), Form 1065, Page 4, Sch. K
  • minus Form 1065, page 1, lines 5 and 6
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Tax Professional: ABC Accounting Group, Certified Public Accountant (CPA) replied 3 months ago

The 14c line item is a nonfarm optional method on Schedule SE (Form 1040), Section B, Part II. If you elect the nonfarm optional method on Schedule SE, it will ned to be added.

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Tax Professional: ABC Accounting Group, Certified Public Accountant (CPA) replied 3 months ago

Only use this amount if you have picked the option method on your return. Recalculate the income, as well, per the calculation noted in the link/email. Thank you.

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Customer reply replied 3 months ago
14c is only used if the partner elects the optional method on his prrsonal 1040 SE? Is it correct for me to tell him that he can just ignore it and use the 14A amount, since he won't be using the optional method? Or do I need to have the 14c amount removed from the schedule k-1 altogether (is that possible)? Thanks...
Tax Professional: ABC Accounting Group, Certified Public Accountant (CPA) replied 3 months ago

Yes - it is ok to let him know. If the calc in 14c is correct (formula-wise), you can leave it. Just make sure he is not electing the optional method on his Schedule SE.

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