Welcome back! Ask questions, get answers, and join our large community of tax professionals.
cancel
Showing results for 
Search instead for 
Did you mean: 

Do guaranteed payments from a partnership for services qualify for the 20% qualified business income deduction?

Highlighted
Level 1

partner owns no capital of the partnership and is only paid for personal services. pays self employment taxes on net income after deducting unreimbursed expenses.

Labels (1)
0 Cheers
1 Solution

Accepted Solutions
Highlighted
Level 15

No, guaranteed payments are specifically excluded.

---------------------------------------------------------------------------------
Still an AllStar

View solution in original post

4 Replies 4
Highlighted
Level 15

No, guaranteed payments are specifically excluded.

---------------------------------------------------------------------------------
Still an AllStar

View solution in original post

Highlighted
Level 11

But he pays income tax and SE tax on line 1 ordinary income plus guaranteed payment, less expenses?

** I'm still a champion... of the world! Even without The Lounge.
0 Cheers
Highlighted

I read an article suggesting partnerships should revisit and revise the partnership agreements to remove references to guaranteed payments. 

By treating them as deductible guaranteed payments, you are increasing your expenses and reducing the benefit of the QBI deduction.  The strategy would be to treat all partner transactions as  distributions as opposed to guaranteed payments. 

Of course, partners would need to focus on quarterly payments after making this change. 

Highlighted
Level 15

Maybe but tax is just a part of the puzzle.

Guaranteed payments are payable without regard to the partnership's income.  The definition is codified under §707; you can't simply "treat" what is actually guaranteed payment in substance as a "distribution".

If there is a change to the arrangement in fact, the partnership agreement would have to be amended.  Would the partners be comfortable with not getting a certain sum if there is a drop in the partnership's income/profitability in the future?  How would that affect each of the partners?  How would the cash flow work out with the partnership and the partners?  Those are just some of the considerations.

---------------------------------------------------------------------------------
Still an AllStar