Partner with a K-1 and guaranteed payments
A general partner's K-1 with both a distributive share and guaranteed payments. The key moves: both are self-employment income, but guaranteed payments are excluded from QBI.
Taxpayer facts
Who this is and what their year looked like.
Devon is single and a general partner in Marsh & Lane Advisory LLP, a two-partner consulting firm in Austin, Texas. The partnership files Form 1065; this practice return is Devon's personal 1040.
His K-1 shows a share of the firm's ordinary business income plus guaranteed payments for his services. He made estimated tax payments during the year.
- NameDevon R. Marsh
- Date of birth11/03/1982
- SSN268-41-7793
- Age (as of 12/31/2025)43
- Filing statusSingle
- DependentsNone
- OccupationPartner, advisory firm
- BusinessMarsh & Lane Advisory LLP: general partner (50%)
- Address1401 E 6th St, Unit 5, Austin, TX 78702
- ResidencyTexas, full year (no state income tax)
- Outside basisAmple (loss/distribution limits not in play)
- 2025 estimated tax payments$20,000 (federal), $5,000 paid on each due date
- 2024 total tax$19,000 (2024 AGI $88,000)
Source documents
Work from these the way you would a real client's paperwork. Everything is fictional.
Objectives
What a correct return should capture.
- Understand the structure: a partnership files Form 1065 and passes income to partners on Schedule K-1; the partnership itself pays no income tax.
- Report box 1 ordinary business income and box 4a guaranteed payments: both flow to Schedule E, Part II.
- For a GENERAL partner, both the ordinary income and the guaranteed payments are self-employment income (K-1 box 14, code A). Compute SE tax on Schedule SE and take the one-half deduction.
- QBI: guaranteed payments are excluded from qualified business income. QBI is the box 1 ordinary income, reduced by the share of the one-half SE-tax deduction attributable to it; then take 20%.
- The QBI deduction is the lesser of that and 20% of taxable income before QBI.
- Basis: a partner tracks outside basis; assume it's ample so nothing is limited.
- No withholding on K-1 income means estimated payments carry the load: apply the estimates to find the refund or balance due.
- Note that Texas has no state income tax.
Check your work
The answer key and the complete return, the way a real client receives it: the 1040 and its schedules, the workpapers behind every number, and the signature forms.
Stuck? Work through it with Yehuda
A one-on-one, 30-minute tutoring session on this return with Yehuda Tenenbaum, EA. Bring the spot where you got stuck and we will work through it together: how the forms connect, why a figure lands where it does, and how to check your work. $250. This is education on the practice return, not advice on your own taxes.