QBI Issue When Your S Corp Is a Partner in a Partnership
It’s common to consider making your S corporation (versus yourself) a partner in your partnership: it saves you self-employment taxes.
Does this affect your Section 199A deduction? It does.
Guaranteed payments are not qualified business income (QBI) for the Section 199A deduction. The non-QBI guaranteed payment rule applies whether the partner receives the payment as an individual or as pass-through income from an S corporation.
Your only options to claw back your Section 199A deduction with the S corporation as a partner are to reduce or eliminate the partnership’s guaranteed payments and then take the income pro rata based on ownership percentage, or to use a special allocation of partnership tax items.
Keep the S corporation self-employment tax savings in mind when considering your partnership activity. Often the self-employment tax savings can make the S-corporation-as-a-partner strategy well worth it.
Want to know more? Have some tax questions of your own? Get in touch with us and we’ll guide you thru the tax and accounting process.