LLC taxed as a partnership (domiciled in Texas, in case it matters). Accountant has provided compensation information to calculate and allocate the contribution for the LLC Profit Sharing Plan for the LLC "members". However, the members have both W-2 income and K-1 earned income.

Is this actually possible?

Thanks!

SMB

Have you been able to find any information? I have just been faced with a similar situation where a sole-proprietor formed LLC with previous employee mid-year at which time the LLC restated and adopted the existing Plan. Dr. A was paid as employee for 3/4 year on w-2 and received k-1 for last 3 months. Not sure yet how to allocate deductions for employee contributions up to point where LLC formed. If you have any luck, let me know. I will do the same.

As a general rule, a partner gets K-1 income, not W-2 income. There are some limited exceptions. Where the partner receives some sort of agreed upon payment to simulate wages, that is reported on the K-1 as a guaranteed payment.

SHP's situation is different. The individual received wages for period that they were a common-law employee and K-1 income for the partnership period. Most plans will defined income to include both sources, but not all.

Whenever dealing with a partnership, you need to look at IRC Section 401©(2) as net earnings from self-employment is only the starting place.

SMB: The accountant goofed if he issued a W-2 to a partner, unless the partner was an employee before he became a partner.


SHP: Eligible compensation of the participant will be comprised of both his W-2 gross and K-1 ordinary income, since the same plan was in effect for the whole year (even though it was restated).

How is 415 compensation determined when a person has both W-2 and negative K1 from a LLC? Are they netted, or added together, i.e. W-2 plus a negative number, or W-2 plus 0?

Don't look on the "ordinary income" line. Look on the "earnings from self-employment" line.