Tracy says, "Congrats on the new baby. Your wife is a trooper." "Yes, she is." "Thank you, Tracy." "I am taking the exam again for the fifth time in February. I got a 69 in July and a 70 in December on the ninja notes. In the partnership section, it says that the following items are not deducted on Schedule K but actually flow through to the partner's K1: investment interest, foreign taxes paid, charitable contributions, and one sitting at an expense. However, on an actual Schedule K, these items are listed. What am I missing? Alright, for a partnership 1065, you have your gross sales and then you subtract your deductions. This includes your cost of goods sold, wages, guaranteed payments, business bad debt (if on an accrual basis using accrual accounting), interest paid, and depreciation (except for 179 expense). This calculation arrives at your ordinary business income. Now, according to the instructions for Form 1065, it states that investment interest expense, foreign taxes paid, charitable contributions, one sitting that expense, and other items are not deducted on the form 1065 to arrive at the ordinary business income. Instead, they flow through to the partner's K1. So, your takeaway for this on exam day is to remember that the following items are not deductible on 1065 but rather flow through to the K1: investment interest expense, foreign taxes paid, charitable contributions, and 179 expense." Music.
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Video instructions and help with filling out and completing Which Form 1120 Schedule M 3 Charitable
