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Profit sharing

Profit sharing is a pay mechanism that ties a business’s performance to its employee’s pay. It refers to payments made to individuals in proportion to the business’s earnings.

Countable Income

Policy indicates S corporations, general and limited liability partnerships, or limited liability corporations might pay a profit share.

  • For general partnerships and LLC member-mangers, include this income in the business’s self-employment income.
  • For S-corps, limited partnerships, and other LLC members, this is unearned income.

Determining the Partnership Type or LLC Member Status

Consult line G on the Schedule K-1 (Form 1065) to see if a client is a general partner/a LLC member-manager or a limited partner/other LLC member.

Required Verification

Profit sharing income appears on the client’s tax return. Consult line 1 on the Schedule K-1 to locate this income.

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