Until last year (through 2005), I was paid as Independent Consultant (Form 1099) at the company I work for. However, starting in 2006, I am now considered 7% partner of the firm and now receive income in the form of K-1 (I guess the correct term is partnership distribution). My question is what are the tax implications? I understand I will no longer be able to deduct many of the deduction that I was entitled to under 1099, but at the same time, I heard that I would no longer be required to pay Self-Employment Tax (Social Security and Medicare taxes)...is this true? Any other benefits or drawbacks? Thanks!
2007-03-20 09:21:00 · 4 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Basically no difference tax-wise. Preparing your return will be easier since you don't have to file a Schedule C. You will still pay self-employment tax. As far as being able to deduct your out-of-pocket expenses, the partnership should reimburse you for these, and therefore these expenses would be included in your net income/loss on your K-1. You should submit an expense report for any business-related expenses.
2007-03-20 17:14:55 · answer #1 · answered by tma 6 · 0⤊ 0⤋
A partnership K-1 has a line for self-employment income so you will still pay SE tax. Benefits are less personal liability and easier to transfer ownership. Main disadvantage is shared business control.
2007-03-20 09:32:14 · answer #2 · answered by spicertax 5 · 2⤊ 0⤋
There are no tax benefits. You will still need to pay SE taxes on that income. Since the income will already be "netted out" on the partnership tax return you'll spare yourself the hassle of preparing Schedule C but that's about it.
2007-03-20 10:03:36 · answer #3 · answered by Bostonian In MO 7 · 1⤊ 0⤋
what deductions can I take for k1 income
2015-04-28 11:29:27 · answer #4 · answered by CRAIG 1 · 0⤊ 0⤋