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Q&A: QBI and Self-Employment Tax Savings for S-Corporation as a Partner

· QBI,Self-Employment Tax,S-Corporations

It’s common to consider making your S corporation (versus yourself) a partner in your partnership: it saves you self-employment taxes.

Does this affect your Section 199A deduction? It does.

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 take the income pro rata based on ownership percentage; or
  • use a special allocation of partnership tax items.

Keep the S corporation self-employment tax savings in mind when considering your partnership activity. Often the savings can make the S-corporation-as-a-partner strategy well worth it.

If you would like us to run your numbers to see the best savings possibilities for you, please do not hesitate to reach out to your team at Luster Tax Consulting to work through this with you. Please use the following link to book your complimentary strategy call with your team at Luster Tax Consulting.

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