Partnership owned by an S Corp

Forum|Forum|3 years ago
April 12, 2023
1 reply
22 views

My client's S Corp now owns a Partnership involving other partners and their attnys and accountants.

I thought for sure that the SE tax on what is now the bulk of the income for the S Corp would somehow pass through to my clients, but now don't see where or how?

My client and his partners are not professionals (attny/lawyers/cpa's) if that matters, but wouldn't the ability to have an s corp own a partnership to avoid SE taxes be questionable?

Otherwise what partnership would structure any other way if this structure can eliminate SE taxes?.

Thanks.

This topic has been closed for replies.

qbteachmt

Level 15

"My client and his partners are not professionals (attny/lawyers/cpa's) if that matters, but wouldn't the ability to have an s corp own a partnership to avoid SE taxes be questionable?"

Everyone participating in the S Corp gets paid through payroll. Payroll covers Social Security and Medicare tax. SE is Social Security and Medicare tax. For SE, when you take the expense as a deduction (giving parity to an employer share), you will notice the math bases the tax on 92.35% and not the full 100% taxable income. For employees, the taxes are split evenly between employee and employer, and the employer's tax return is where the employer share is a deduction.

It's not avoidance. It's a different method for payment.

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B

Basta Author

Level 2

I know and understand S Corps. That's primarily what I use for my clients.

The Partnerships I have in some cases own interests in other Partnerships.

The is the first time i've had an S Corp owning a Partnership and I just instinctively became worried about the SE taxes.

So you're saying it doesn't matter that most of the income comes from partnerships on their K-1, Box 14, Code A?

all the partnership self-employed income shown on the K-1 passes into the S Corp and then is just treated as ordinary income with no SE implications?

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