The tax-saving strategy of S-corporation as a partner does affect your Section 199A deduction. 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.
Takeaway
In conclusion, 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.
We specialize in helping clients clarify their taxes so they keep more of their money. Many small business owners who come to see us in Fort Worth, TX generally do not understand the tax law enough to explain it to a fifth grader.
If you or someone you know is self-employed or a small business owner, please feel free to contact me by scheduling a call, or by emailing at [email protected].
Tatsiana B. Bender
Bender CPA, PLLC
Fort Worth, TX 76107
[email protected]
Phone: (817) 313-4352
Bender-CPA.com
