Level 6

Question

Qualified tips deduction under OBBBA on form 1065 schedule K-1

Forum|Forum|4 months ago
February 13, 2026
3 replies
27 views

Anyone know where to enter qualified tips deduction under OBBBA on form 1065 schedule K-1

ProSeries Professional

T

Terry53029

Intuit Community Champion

You don't report on 1065. Employees will report on their 1040 (either 1099 or W2)

C

ChiHoangAuthor

Level 6

These tips are from partnership tax form 1065, not from 1099 or W-2

sjrcpa

Level 15

You're saying the partnership received tips on behalf of partners?

The more I know the more I don’t know.

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TaxGuyBill

Level 15

As of now, I don't think there is a way.

Tips the Partnership itself are not deductible.

Tips to the Partners would need to somehow start off on a 1099 (probably to the Partnership), but there has been no guidance for that and no way for the Partnership to pass it along to the Individual.

In short, with the current guidance, it isn't a deduction. Perhaps whenever Final Regulations are made that could change, but as of now, I don't see anything that indicates it can be deductible.

C

ChiHoangAuthor

Level 6

Tips to partners are already included in partnership income which is allocated in K-1, part III line 1 Ordinary business income (loss). So they should not be in guaranteed payments to partners.

These tips are qualified tips deduction under OBBBA, my question is how do we pass them to partners' individual tax returns 1040.

On 1065, I enter partners' tips on K-1 line 13 (Z) as other deductions. On 1040, I enter partners' tips on K-1 line 13 (Z), but don't see any impact on 1040 as income deduction. Any idea ? Thanks

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TaxGuyBill

Level 15

As I said before, here is no guidance from the IRS for how tips can pass through to the Partner, or even if they can do that. Because there is no guidance, the tax software isn't going to do it unless you override the software.

As a side note, although I haven't researched it, if a tip is specifically given to one person, it doesn't make sense that it should be in Box 1 of the K-1 (Guaranteed Payments or some other method seems more logical to me).

M

mmmconsultingservices

Level 3

Hello there! I am seeing a lot of mis information in this thread. The tips are deductible if earned even if they are an owner. The IRS provides an example of the tour guide that receives tips as a sole proprietorship are deductible. The same is true for partnerships with owners of a coffee shop for example where they get tips when working by themselves. I am still trying to figure out how to process this and I think they have to do it on the 1040 separately from what I can tell but let me know if you find something.

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TaxGuyBill

Level 15

@mmmconsultingservices wrote:

The same is true for partnerships with owners of a coffee shop for example where they get tips when working by themselves.

The law says the individual must receive a W-2 or 1099 that includes the tips (or an employee files Form 4137 with their tax return).

A Partner does not receive a W-2 or 1099 (and can't file a 4137), so as the law reads now, a Partner does NOT qualify for the tip deduction.

It is possible that the IRS could create a Regulation in the future that allows a tip to be passed through on the K-1, but as of now, there is no such rule.

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