A partner had the following items reported on a partnership Schedule K-1: $\begin{array}{lr}\text { Ordinary income (including Section } 1245 \text { recapture of } \$ 5,000 \text { ) }&\$59,000\
\text { Dividend income } & 1,500 \
\text { Guaranteed payment } & 9,000 \
\text { Section 179 expense } & 26,000
\end{array}$ The partner's self-employment income for the year equals:

Question

Quizplus · Accepted Answer

Self-employment income includes ordinary business income and guaranteed payments, but not dividend income or Section 179 expense deductions. Therefore, the partner's self-employment income is $59,000 (ordinary income) + $9,000 (guaranteed payment) = $68,000. However, the Section 1245 recapture of $5,000 is part of the ordinary income, which is not subject to self-employment tax. Thus, the correct self-employment income is $68,000 - $5,000 = $63,000.

A Partner Had the Following Items Reported on a Partnership