I was at a Corbel conference just over a year ago, and I've got a hastily scribbled note that says "real net K-1 earnings are net of IRC 179 amounts and non-reimbursed expenses".

Now, not that I don't trust myself, but I can't find anything anywhere that corroborates this. Does this sound familiar to anyone out there?

Also, does this hold for Schedule C comp as well? Should I be backing line 13 out of the the net comp?

The §179 expense should be subtracted from K-1, line 14a in determining comp. for a partner. The instructions to Sch. K-1 are clear on that point.

For sole propreiters the §179 decution should have already been considered in arriving at line 31.

Perfect, R. Butler, thanks!

Uh-oh; not so perfect.

I just had an accountant tell me that the correct way to do this was to take the ordinary business income (Line 1 of the 2005 K-1), add the guaranteed payments (Line 4), and subtract the Section 179 deduction (Line 12). This comes up with a number slightly different from Line 14 - Line 12. I didn't really get a good explanation (or maybe I just didn't understand it), but he was quite sure that his way was correct.

Is anyone else doing it this way?

Guaranted payments should be taken into account when computing self-employed earnings. You didn't ask about guaranteed payments in your initial questions, you only asked about §179 deductions.

Oh, as a side note the guaranteed payments must be made for services rendered in order to be considered. I have seen partnerships where the guaranteed payments are not for services rendered.

As a side note, I don't recall ever seeing the numbers come up different although I suppose they could. I'd be curious to see a situation where it would come up different.

As a side note.... oh, never mind.

What can I say? It was a rough afternoon.