Thanks everyone for the detailed explanations! This has been incredibly helpful. I'm dealing with a similar situation and want to make sure I understand the process correctly. From what I'm gathering, the key is to first determine whether the partnership has already applied the 163(j) limitation at their level. If they have, then the Box 13k amount is already limited and can be deducted directly on Schedule E without filing Form 8990. But if the partnership is exempt and passed through the full amount, then I need to evaluate whether my individual client qualifies for the small business exemption. One follow-up question: if my client does need to file Form 8990, does the Box 13k amount get entered on line 1a as "business interest expense" or does it go somewhere else on the form since it's coming from a pass-through entity? I want to make sure I'm not double-counting or missing anything in the calculation. Also, for the gross receipts test, when you say "businesses under common control" - does this include if my client owns rental properties through separate LLCs? The aggregation rules can get pretty complex.

This is exactly the kind of complex partnership issue that trips up so many practitioners! I've been dealing with similar K-1 Box 13k situations lately, and the key insight that helped me was realizing that the partnership's treatment determines your next steps. Here's my practical approach: First, look for any statement or attachment that came with the K-1 - partnerships are supposed to indicate whether they've applied the 163(j) limitation. If they have, you're done - just deduct the $92,300 on Schedule E. If there's no clear indication, I'd recommend calling the partnership's preparer directly rather than guessing. For the gross receipts test, remember it's a 3-year average of ALL businesses under common control. So if your client has multiple entities or rental properties, you'll need to aggregate everything. The $27 million threshold applies to the combined total. One red flag I've learned to watch for: sometimes partnerships will put a note in Box 20 with code AE indicating they're exempt, but that doesn't mean your individual client is automatically exempt too. You still need to run the gross receipts test at the individual level. The good news is that once you work through this process a few times, the pattern becomes much clearer. Don't hesitate to reach out to the partnership if you need clarification - they should have this information readily available since other partners are probably asking the same questions!

Thanks everyone for all the helpful advice! This thread has been incredibly informative. Just to make sure I understand correctly - the GoFundMe donations will count as business income on our tax return, but then we can deduct the kiln purchase as a business expense, essentially balancing it out? I'm leaning toward using Section 179 to deduct the full equipment cost in the same year since we're still a small operation and this would help offset the crowdfunding income immediately. Does anyone know if there are any specific requirements for Section 179 eligibility with pottery kilns? I assume it qualifies as business equipment, but want to make sure before we launch the campaign. Also planning to be extra diligent about documentation - screenshots of the final GoFundMe total, the equipment invoice, bank transfer records, everything. Better to have too much paperwork than not enough if the IRS ever has questions!

This is such a great discussion! As someone who went through a similar situation with my small woodworking business, I wanted to add one more consideration that hasn't been mentioned yet. If your pottery studio is set up as a sole proprietorship (which many small creative businesses are), the GoFundMe income will flow through to your personal tax return on Schedule C. This means it could potentially affect other things like your self-employment tax calculation, even if the income and equipment expense offset each other for regular income tax purposes. The self-employment tax is calculated on your net business income, so if the crowdfunding pushes your total business income higher (even temporarily before the equipment deduction), you might see a small increase in SE tax. It's usually not a huge amount, but worth factoring into your planning. Also, make sure to check if your state has any specific rules about crowdfunding income. Some states handle it differently than the federal treatment, especially regarding sales tax implications if there's any question about whether you're "selling" something (even if it's just gratitude and recognition). The Section 179 route is definitely the way to go for your situation though - it'll give you the cleanest offset against the GoFundMe income!

Anyone know if there's a fee for setting up direct debit with the IRS? I'm using FreeTaxUSA too and I owe about $3,800. Really confused about the whole process.

I just went through this exact same process with FreeTaxUSA last week! You're right that it can be confusing at first. Here's what worked for me: 1. Complete your entire tax return in FreeTaxUSA first 2. When you get to the payment section, don't worry about finding a "direct debit installment agreement" option - FreeTaxUSA doesn't handle that part 3. Select "I cannot pay the full amount now" or similar wording 4. Finish filing your return through FreeTaxUSA 5. After your return is accepted, go directly to irs.gov/payments 6. Click "Online Payment Agreement" 7. Choose "Direct Debit Installment Agreement" from the IRS menu The key thing I learned is that FreeTaxUSA just gets your return filed - the actual payment plan setup happens directly with the IRS afterward. Don't stress about not seeing the direct debit option in FreeTaxUSA itself. Once you're on the IRS site, you'll have full control over your monthly payment amount, withdrawal date, and all the other terms. Hope this helps! The whole process took me about 20 minutes once I knew where to go.

This is such a helpful discussion! I'm in a similar boat with my S Corp and was getting confused by all the different rules. One thing I'd add that helped me understand the loss situation better - think of the SEP contribution as just another payroll expense, like your regular salary. The fact that your business shows a loss doesn't prevent you from paying yourself wages, and it doesn't prevent you from making retirement contributions based on those wages either. The loss might actually be partially due to the salary and SEP contribution expenses themselves! For what it's worth, I've been making SEP contributions for three years now, including one year where my S Corp had a small loss, and never had any issues with the IRS. The key is just making sure you have the cash flow to support it and that your contribution doesn't exceed 25% of your W-2 wages. Your math on the $13,500 salary and $3,375 contribution looks spot on. Just make sure to coordinate with your payroll company about that Box 13 - it really does matter for your personal tax situation down the road.

As someone who went through this exact situation last year, I can confirm that yes, you absolutely get the full business deduction for the SEP contribution even in a loss year! The SEP contribution is treated just like any other ordinary business expense on your S Corp tax return (Form 1120S). In my case, the SEP contribution did increase my business loss for the year, which then flowed through to my personal return as an ordinary business loss on Schedule E. This actually provided some tax benefit on my personal side since it reduced my overall taxable income from other sources. One practical tip I learned - make sure you have adequate documentation showing the SEP contribution was made before your S Corp tax filing deadline (including extensions). The IRS wants to see that the contribution was actually made, not just promised. I always make my SEP contributions by December 31st to avoid any timing issues, even though technically you have until the filing deadline. Also, definitely get that payroll communication sorted out early! I had to file a corrected W-2 one year because we missed the Box 13 checkbox initially. It's much easier to get it right the first time than to fix it later. Your situation sounds very straightforward - W-2 wages of $13,500 means you can contribute up to $3,375 to the SEP IRA, regardless of whether the business shows a profit or loss for the year.

This is really helpful information! I work for a state university and have been dealing with the same confusion. My W2 Box 12a Code E shows $18,500 but I know I contributed more than that throughout the year when I add up my pay stubs. After reading through all these responses, I now understand that my university requires a mandatory 3% contribution that doesn't show up in Box 12a - only my voluntary contributions do. I was worried I had made an error somewhere or that payroll had messed up my W2. It's actually pretty smart that they separate these on the W2 since the IRS needs to track voluntary contributions differently for the annual limits. Thanks everyone for clearing this up - I was about to call HR thinking there was a mistake!

This thread has been incredibly helpful! I work for a nonprofit hospital and have been scratching my head over the same issue with my W2. My Box 12a Code E shows $15,200 but my total 403b contributions for the year were actually $19,700 based on my pay stubs. Now I realize that my employer requires a mandatory 4.5% contribution that doesn't appear in Box 12a - only my voluntary contributions show up there. What threw me off was that both types of contributions come out pre-tax from my paycheck, so I assumed they'd both be reported the same way on the W2. It makes perfect sense that the IRS would need to track voluntary vs mandatory contributions separately for the annual limit purposes. The mandatory contributions are essentially forced savings that don't count against the $23,000 elective deferral limit, which is actually a great benefit for us employees! Thanks to everyone who explained this - saved me a call to payroll thinking there was an error.