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Tax Trails - Self-Employment Income

Generally, if you are a member of a partnership that carries on a trade or business, you must include your distributive share of partnership income or loss in figuring your net earnings from self-employment. This is true even if you are inactive in the business, unless you are a limited partner. Also, include in your self-employment income guaranteed payments you get from your partnership for services you perform for the partnership.

INACTIVE PARTNER - Your self-employment income includes your distributive share of partnership income or loss and any guaranteed payments.

LIMITED PARTNER - Your self-employment income includes guaranteed payments, such as salary and professional fees, received for services performed during the year. It does not include a distributive share of partnership income or loss.

Your net earnings from self-employment are shown on Schedule K-1 (Form 1065) (.pdf), Partner’s Share of Income, Deductions, Credits, etc.. You do not attach Form 1065 (.pdf), U.S. Return of Partnership Income, or its Schedule K-1 to any personal income tax return filed.

Report the income on your Form 1040 (.pdf) as indicated on Schedule K-1 (Form 1065). Figure your self-employment tax on Schedule SE (Form 1040) (.pdf), Self-Employment Tax.

QUALIFIED JOINT VENTURE - If you and your spouse materially participate as the only members of a jointly owned and operated business and you file a joint tax return for the year, you can make a joint election to not be treated as a partnership for federal tax purposes and instead be treated as a qualified joint venture.

If you earn or receive income during the year that is not subject to withholding or you do not have enough tax withheld, you may have to pay estimated tax. If you do not pay enough tax during the year through withholding or by making estimated tax payments, you may have to pay a penalty.

For more information on partnerships, refer to Publication 541, Partnerships. For more information on estimated tax, refer to Chapter 2 of Publication 505, Tax Withholding and Estimated Tax.

 

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Page Last Reviewed or Updated: 01-Jan-2014