Discussion:K-1 income to Schedule C

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Discussion Forum Index --> Tax Questions --> K-1 income to Schedule C

Amtax (talk|edits) said:

12 April 2007
I am being told by a CPA that I need to do the following for a client:

"Set up a Single Member LLC for your client and pickup his income on schedule C...As you know single member LLC is a disregarded entity for tax purposes. Sub S is an overkill."

How do I pickup K-1 (1065) income on a Schedule C in ProSeries?

JR1 (talk|edits) said:

April 12, 2007
As he said, it's disregarded. So you'd pick it up on Sch. E like any other K1.

JR1 (talk|edits) said:

April 12, 2007
Oh, wait, misunderstood. You think you have to file a 1065? No, you don't. Ignore the LLC. He's got legal protection and files tax as a sole prop.

Amtax (talk|edits) said:

12 April 2007
I understand that, but I am not sure how to manipulate ProSeries to flow the K-1 income into the Schedule C. Thanks

Jdugancpa (talk|edits) said:

12 April 2007
There is no K-1. K-1's result from a partnership (1065) or an S corp (1120S). Since there is no S corp and only a single member, there is no partnership either. Therefore, whatever is coming on a K-1 is wrong. Report the information directly on Sch C.

Amtax (talk|edits) said:

12 April 2007
All of the income comes from a Partnership of which the Single Member LLC (my client) is a 50% owner. The CPA for the other partner is filing his client's tax return by claiming all of the income from the K-1 on a Schedule C for the Single Member LLC. He states that in order to claim this income from the K-1 (Partnership) on Schedule C a Single Member LLC must be set up (as a disregarded entity).

Kevinh5 (talk|edits) said:

12 April 2007
he doesn't know what he is talking about

Jdugancpa (talk|edits) said:

12 April 2007
I concur with Kevin. If the LLC is a disregarded entity, the K-1 gets reported just like the LLC does not exist, i.e., on Sch E with various items sprinkled around everywhere else, as K-1's are wont to do.

Amtax (talk|edits) said:

12 April 2007
I was afraid someone would say that. Are there any limitations to claiming the partner's expenses related to partnership activities on Schedule E (flowing to Line 31, Pg. 2 of Schedule E)?

Solomon (talk|edits) said:

12 April 2007
Are you talking about a General Partner's UPE?

Amtax (talk|edits) said:

12 April 2007
Yes, is this an avenue I can take to claim expenses that a partner incurs in earning income reported by the Partnership but not deducted on the Partnership return?

Solomon (talk|edits) said:

12 April 2007
If there is at a minimum a verbal agreement among/between the partners that this will be the standard practice, yes.

Amtax (talk|edits) said:

12 April 2007
Actually the other partner's CPA is claiming all of his expenses on a Schedule C. I don't agree with the CPA that a Schedule C should even be filed. Therefore, I am assuming that my client can claim his own expenses on Schedule E (where I believe they belong). Agreed?

Solomon (talk|edits) said:

12 April 2007
Yes, Sch E - at least one of you will be correct.

Wwtaxes (talk|edits) said:

12 April 2007
It sounds like the original advice is to have a partnership where the members are SMLLC's, with the purpose of deducting expenses on 'C'. Why is this wrong? It's ok to have members of a partnership be LLC's. SMLLC's file C, where the expenses can be declared. While the direct route may work as well on the E, I don't see anything wrong with a partnership that consists of 2 SMLLC's, each filing a Schedule C. If anyone wants to humor me, tell me what I'm missing.

Okie1tax (talk|edits) said:

12 April 2007
The Partnership will report the PARTNERSHIP's income, expenses etc to the partners via a K-1. If the partner is a SMLLC, it is disregarded as an entity, the owner of the SMLLC IS the entity for federal tax purposes. The K-1 income and expenses may be reported many different places on the 1040, but NOT on Schedule C.

Dennis (talk|edits) said:

12 April 2007
Nonsense. Example. I have a 60's musician who does solo acts, mostly cruise ships and also performs with two of the groups he recorded with. Both groups are partnerships and he gets k-1's which get journaled over to his Schedule C as other income.

Wwtaxes (talk|edits) said:

12 April 2007
Wow. I don't have anything like this with my clients, which is a good thing because I would have done it wrong. I would have assumed that the K1 was income to the LLC and that the SMLLC should file a 'C' bc that's what an SMLLC does if it isn't a member of a partnership.

Thanks much for the clarification.

Jdugancpa (talk|edits) said:

12 April 2007
SMLLC is a "disregarded entity". So disregard it and pretend it does not exist for tax purposes. As a partner in a partnership, where does the income get reported?

Glmpllc (talk|edits) said:

12 April 2007
WOW...there's some scary stuff going on out there...

Pegoo (talk|edits) said:

12 April 2007
I'm not sure if any of the points will help you here. It appears that you are not listening to advice. Good luck on that K-1. Hehe.

Dennis (talk|edits) said:

12 April 2007
If the client is essentially in the same business (either as an Sole Proprietor or SMLLC) as the partnerships you need to aggregate the income. If you don't there is a major headache allocating expenses across entities. One of the biggies would be home office. The mechanics are faily simple. You create additional K=1 entry sheets with the partnership ID# (Called Parternship income reported on Schedule C) and use negative numbers for the income. (The rest of the K-1 entries can stay.)

Amtax (talk|edits) said:

12 April 2007
You will all have to excuse my simple mind but what I don't get in all of this is that in this case the Single Member LLC is a "disregarded entity". From the dictionary disregarded means "To pay no attention or heed to". That said, when an owner of a partnership receives a K-1 I have never flowed the income to a Schedule C and I don't see how being a Single Member LLC "Disregarded Entity" would change where income from a K-1 would flow. Please educate me on flowing K-1 income to a Schedule C. And at this point can anybody see a problem with claiming expenses incurred (and not reported on the 1065) on the partner's 1040, Schedule E?

Wwtaxes (talk|edits) said:

12 April 2007
Am - I think they are agreeing with you. I asked for clarification bc I would have made the same assumption as did the CPA that gave you the advice (apparently wrongfully so). If I have a SMLLC, it is taxed as a SP on Schedule C. If I have a partner, I get the info from the K1. So I figured his advice sounded plausible: Take the K1 and since the partner is actually a SMLLC, it is income to the LLC, and should go on the C, where the LLC also has expenses. However, several have pointed out this is inaccurate.

I asked the question bc I don't have a situation like this, but was curious about it. I'm sorry if I confused your original discussion. From reading this, it sounds like you are on the same page as the others, except for the complication that Dennis pointed out.

Wwtaxes (talk|edits) said:

12 April 2007
Whoa. I just reread the discussion and saw Dennis' first post which must have gotten posted simultaneously with mine right after it. So maybe I'm not altogether wrong in thinking about this.

Wwtaxes (talk|edits) said:

12 April 2007
Dennis, in your musician example, is the musician a SP or a SMLLC?

Dennis (talk|edits) said:

12 April 2007
Sole proprietor, but the distinction only has meaning if we are talking rentals or other passive income. The point is whether the partnership income relates to his business and even more to the point, how his business expenses relate. Look. The guy spends $800 on a cordless mike used in year one 25% solo 15% one partnership 20% in the other partnership and the rest of the use is rehearsal. You want to take the position that there is no ยง179? Or that the recording studio in his finished basement isn't exclusive use? You simply cannot do a return like this without aggregating income and expense.

Okie1tax (talk|edits) said:

12 April 2007
Dennis, would you mind pointing me to the area of the Partner's Instructions for Schedule K-1 (Form 1065) that it mentions putting something on Schedule C?

Amtax (talk|edits) said:

12 April 2007
My clients incurred expenses are 100% related to the Partnership income that is being reported on the K-1. Does anybody see a problem with reporting the incurred expenses on Schedule E, Line 31?

I still don't understand how creating a disregarded entity (SMLLC) would change whether it is correct to report K-1 (1065) income on a Schedule C, its disregarded.

Glmpllc (talk|edits) said:

12 April 2007
Dennis...it sounds like a very practical approach and I doubt the result is any different than the way I would approach it. Myself, I would run everything through the Sched C, then back out an amount for UPE, which would get moved to Sched E along with the k-1 income.

Dennis (talk|edits) said:

13 April 2007
The result may or may not be the same depending on how you treat business use percentages for depreciation and how you define exclusive use for home office, but I can't see how you can justify spending the time on the individual allocations for no client benefit.

Glmpllc (talk|edits) said:

13 April 2007
lol...you assume I'm billing by the hour, not always the case...those allocations don't take a lot of time to compute...by the way, we do a lot of things that the client may not percive as a benefit, but they are the right thing to do.

Joevinful (talk|edits) said:

13 September 2009
IF A SMLLC IS A PARTNER AND RECEIVES A K-1 FROM THE PARTNERSHIP FOR HIS SHARE OF ORDINARY INCOME FROM THE PARTNERSHIP WHERE DOES THE K-1 INCOME GET REPORTED ON THE SMLLC'S PERSONAL TAX RETURN ?

IS THE ANSWER SCHED E OR SCHED C ? IF SCHED E WHERE WOULD YOU DEDUCT BUSINESS EXPENSES INCURRED BY THE SMLLC ?

Kevinh5 (talk|edits) said:

13 September 2009
do a search on UPE and you will find the second answer. Consider that an SMLLC that doesn't elect another scheme of taxation is disregarded, and you'll have your first answer.

Of course, if you'd fill in you [profile], I might even link you to the answers myself. I have been known to be somewhat helpful in the past.

Kevinh5 (talk|edits) said:

13 September 2009
or heck, maybe just read this thread in its entirety. Lots of great answers up there.

Blrgcpa (talk|edits) said:

13 September 2009
HEY JOE, STOP SHOUTING AT US!

Expenses incurred by the partner(in this case the LLC) on behalf of the partnership s/b on the 1065. Otherwise, the income of the partnership is being overstated. These expenses do not belong on the 1040.

Report the K-1 income on sched e.

Kevinh5 (talk|edits) said:

14 September 2009
Thanks for updating your profile.

Discussion:K1 partner - wants to deduct unreimbursed business expenses

Discussion:Partner's guaranteed payments & unreimbursed expenses

K-1 Issues for Individual Taxpayers, General

Discussion:LLC member claiming additional expenses Sch E p2

Discussion:Single Member LLC - Sch C or Sch E?

found all of these within 3 minutes by using the little yellow search box

I'm sure there is more, if you want to try it

Joevinful (talk|edits) said:

14 September 2009
Thanks Kevin

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