SE Income Calculation Questions

A. Check the "Guaranteed payment to this partner are NOT self-employment income" box in the Partners category, Partner Information worksheet, Guaranteed Payments/Partner Options section.

Q. How is gross non-farm income calculated on Schedule K, line 14c?

A. The System adds the amounts on Form 1065, page 1, lines 3 and 7 plus passthrough amounts from the Passthrough Items worksheet, Self-Employment section.

However, the System does not include the allocable portion of these amounts from partners that are not subject to SE. In other words, the System backs into this amount by first calculating the gross non-farm amounts for each applicable partner, then adding these amounts and carrying the total to Schedule K, line 14c.

Q. How do I reduce SE income by Section 754 depreciation or amortization?

A. Select either the first or third option in the "Code to subtract Section 754 depreciation and/or Section 179 expense from self-employment income" field found in the Partners category, General Options worksheet, Schedule K-1 Calculation Options sections.

Q. Why isn't SE income reduced by the Section 179 expense on Schedules K, line 12 and K-1, box 12?

A. The expense is subject to limitations on the partner's return and therefore cannot be deducted from ordinary income or from SE income on the partnership return. The IRS instructions to the partner for Schedule K-1, box 14, Code A (net income from self-employment), state to "...reduce this amount before entering it on Schedule SE (Form 1040) by any section 179 expense claimed...."

You can force the reduction by selecting either the second or third option in the "Code to subtract Section 754 depreciation and/or Section 179 expense from self-employment income" field found in the Partners category, General Options worksheet, Schedule K-1 Calculation Options sections. However, use of this option could result in an incorrect calculation of SE income on the partner's Form 1040 if the partner follows the IRS instructions quoted above.

Q. How can I get the System to calculate SE income for LLC members?

A. If you want SE income calculated for every LLC member, select the "Calculate self-employment income for all limited partners, LLP partners and LLC members" option in the Partners category, General Options worksheet, Schedule K-1 Calculation Options section. If, however, you want SE income calculated only for specific limited partners, select the option on the "Force SE calculation for this limited partner" option on the Partners category, Partner Information Worksheet, Guaranteed Payments/Partner Options section under the Partner Options heading.

You can use these same boxes to calculate SE income for any type of limited partner, including a limited liability partner.

Q. If the System includes ordinary income from passthroughs that I enter on the Passthrough Items worksheet under the Income/Deductions category, won't my entry for SE income on this same worksheet double up the calculation?