Why are guaranteed payments deducted in calculating the ordinary business income (loss) of partnerships and treated as a separately stated item for the partners that receive the payment?
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Guaranteed payments are conceptually similar to salary payments made to specific partners for services provided to partnerships. For this reason, partnerships treat guaranteed payments similarly to salary or wage payments made to unrelated parties-they are typically deducted in calculating the ordinary business income (loss) of partnerships. Including guaranteed payments as separately stated items on the Schedule K-1s of partners receiving guaranteed payments serves the same function as providing W-2 forms to employees. It puts these partners on notice that they must report ordinary income related to the guaranteed payments they have received. However, unlike an employee's W-2 form, the Schedule K-1 also reports partners' guaranteed payments as separately stated self-employment income from the partnership.
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