Tax Newsletter

• Tax Credit for the Elderly and Disabled
  Certain elderly and/or disabled taxpayers may be entitled to a tax credit when filing their federal income tax return. A tax credit can be deducted from the amount of federal income tax owed, as opposed to a tax deduction, which reduces... Read more.
• Deduction of Expenses for Charitable Work
  You may be able to deduct certain expenses that are related to volunteer services offered to a qualified charitable organization. However, these services should not have been reimbursed or used for personal... Read more.
• IRS Penalties
  Many taxpayers at one time or another find themselves in a situation where they either did not file their Federal Income Tax return on time and/or filed their tax return without making the necessary payment for the tax year covered. In... Read more.
• Employee Benefits When Employers Declare Bankruptcy
  Generally, a business that is facing serious financial difficulties might seek to file for bankruptcy under either Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. Chapter 7 bankruptcy is more severe, as it involves a liquidation of... Read more.

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Partners and Self-Employment Tax

The Internal Revenue Service generally requires self-employed individuals to pay self-employment taxes. How does this self-employment tax requirement apply to partnerships?

Generally, if you are a partner, your proportionate share of a partnership’s income or loss must be considered to determine your self-employment income. Guaranteed payments from the partnership are included.

Limited Partners

Because limited partners generally do not participate in the decision-making process of the partnership, only guaranteed payments from the partnership are included in the calculation of self-employment income.

Retired Partners

Sometimes retired partners still receive income from the partnership. The IRS does not consider this income to be subject to self-employment tax, as long as the partner receives lifetime periodic payments and does not provide any services to the partnership.

Husband & Wife Partners

If a husband and wife operate a business as a partnership, formally or informally, special forms are required by the IRS for reporting income and losses. However, just because a husband and wife are both in the same business does not necessarily mean that they are partners. One may be working for the other as an employee. In that case, the typical Social Security/Medicare taxes must be paid by the employer/spouse on behalf of the employee/spouse.

Investment Club Partnerships

A common partnership entity is an investment club partnership. This type of partnership has a number of individuals who collectively invest for profit. However, income will not be considered as self-employment income if the investment is limited to:

• Investing in savings certificates, stock, or securities
• Collecting interest or dividends for its members’ accounts

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