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Tax Trails - Self-Employment Income


Generally, if you're a member of a partnership (or a member of a limited liability company that elects to be treated as 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're inactive in the business, unless you're 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 doesn't include a distributive share of partnership income or loss.

Your net earnings from self-employment are shown on Schedule K-1 (Form 1065), Partner’s Share of Income, Deductions, Credits, etc. You do not attach Form 1065, 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, U.S. Individual Income Tax Return, as indicated on Schedule K-1 (Form 1065). Figure your self-employment tax on Schedule SE (Form 1040), 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 current tax year, you can make a joint election to treat the business as a qualified joint venture instead of a partnership. This election permits certain married co-owners to avoid filing partnership returns, provided that each spouse separately reports a share of all of the businesses’ items of income, gain, loss, deduction, and credit. Under the election, both spouses will receive credit for social security and Medicare coverage purposes.

If you earn or receive income during the year that's not subject to withholding or you don't have enough tax withheld, you may have to pay estimated tax. If you don't pay enough tax during the year through withholding or by making estimated tax payments, you may have to pay a penalty. See Tax Topic 306 - Penalty for Underpayment of Estimated Tax.

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, and Tax Trails - Do You Have to Pay Estimated Tax? For more information on qualified joint ventures, search "qualified joint venture" on


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Page Last Reviewed or Updated: 19-Jan-2017