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If you are a member of a partnership that carries on a trade or business, your distributive share of its income or loss from the trade or business is included in your income from self-employment. Guaranteed payments from your partnership should be included, along with your share of earnings or losses, when you figure your net earnings from self-employment.

Inactive partner. An inactive partner figures income from self-employment by including the distributive share of partnership income or loss and any guaranteed payments.

Limited partner. A limited partner figures SE income by excluding the distributive share of partnership income or loss. But guaranteed payments, such as salary and professional fees received for services performed during the year, are included as SE income.

Husband and wife partners. You and your spouse may operate a business as a partnership. If you and your spouse join together in the conduct of a business and share in the profits and losses, a partnership has been created. You and your spouse must report the business income on a partnership return, Form 1065. Attach Schedules K-1 to Form 1065 to show each partner's share of the net income and file separate Schedules SE (Form 1040) to report each partner's SE tax.

However, if your spouse is not your partner, but your employee, you must pay social security and Medicare taxes for him or her.

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