Are Self-Employment Earnings, Reported on Box 14 of the Partnership Schedule K-1, Cash Inflows?
Many of our users have called the hotline asking if Box 14 (self-employment earnings) on the partnership Schedule K-1 should be included as cash flow to an individual. Since we receive this question often, we felt it was worth explaining in greater detail in our newsletter.
At first glance, Box 14 (self-employment earnings) may seem like a cash inflow to the borrower, but don’t be fooled! The box’s earnings (or losses) are simply listed on the Schedule K-1 for informational purposes. Any amount reported in Box 14 flows through to the Schedule SE and is used to compute an individual’s self-employment taxes. The amount in Box 14 should not be used in computing an individual’s cash flow for the year.
Please note that the Schedule K-1 is designed to provide detailed information about the partner. Not every item listed impacts cash flow to the individual, so be careful as you spread a K-1 to make sure you are only including the necessary items for an individual’s cash flow analysis.