My accountant told me that the proper treatment depends on your relationship with the partnership. Are you a general partner? Limited partner? Just an employee who gets a K1 for some reason? The rules are different for each situation. If you're a limited partner, royalties are almost always reported in Box 11 and not subject to SE tax. But general partners often have different treatment. Maybe show your employer this article I found helpful: https://www.thetaxadviser.com/issues/2017/jun/determining-self-employment-income-partners-partnerships.html

This is a common issue I've seen with K-1 reporting, and you're absolutely right to question it. The key is understanding the nature of your royalty payments and your role in the partnership. From what you've described, if these are truly passive royalties from intellectual property you created in the past but are no longer actively developing, they should NOT be subject to self-employment tax. The proper reporting would typically be Box 11 with code F for royalties, not as guaranteed payments in Box 4a or self-employment earnings in Box 14A. However, I'd recommend getting a definitive answer by reviewing your partnership agreement and the specific terms of your royalty arrangement. The classification can depend on whether you're considered to be receiving these payments for past services, current services, or simply as a return on capital (your intellectual property). You might want to request a meeting with your employer's accounting department and bring documentation showing the nature of your royalty agreement. If they're unwilling to correct it, consider getting a second opinion from a tax professional who specializes in partnership taxation, as the SE tax implications can be significant over time.

Just a real life example: I didn't properly report my cash tips for 2 years and got absolutely hammered in an audit. The IRS calculated my "expected tips" based on the restaurant's sales records and my shifts. Ended up owing over $4,300 in back taxes plus penalties. Not worth the risk! Just track everything and report properly.

As someone who's been serving for about 5 years, I'll add that it's really important to understand the difference between "reported tips" and "allocated tips" on your W-2. If your reported tips are less than 8% of your sales, your employer might add "allocated tips" to make up the difference. These allocated tips show up on your W-2 but don't have taxes withheld from them, which can create a surprise tax bill. Also, keep in mind that if you work at a large restaurant (11+ employees), they're required to report total tip income to the IRS, so there's already a paper trail of what the restaurant's servers are making collectively. This makes underreporting much riskier than people think. My advice: track everything daily, report it all to your employer monthly, and if you're worried about owing taxes at the end of the year, consider having extra money withheld from your paycheck or making quarterly estimated payments. Better safe than sorry!

I went through this exact same situation last year and can confirm that everyone's advice about using Code "B" is spot on. What really helped me was creating a simple spreadsheet to track all my transactions before transferring them to Form 8949 - it made the whole process much less overwhelming. One thing I'd add is to keep copies of all your brokerage statements and trade confirmations, even after you file. The IRS occasionally asks for documentation to support the cost basis information you're reporting, especially when it wasn't reported by your broker. Having everything organized made it easy when I got a letter asking for clarification on a few transactions. Also, if you're doing multiple forms (like if you have both short-term and long-term transactions), make sure you're using the right boxes at the top. It sounds like you've got this figured out with Box B for short-term unreported basis, but it's easy to mix them up when you're dealing with multiple forms. The whole process gets much easier once you do it the first time - I was stressed about it last year but this year it took me maybe 30 minutes to complete all my 8949 forms. You've got this!

I just wanted to chime in as someone who's been through this exact scenario multiple times. Code "B" is absolutely the right choice for your situation - when your 1099-B shows that cost basis wasn't reported to the IRS, that's exactly what Code "B" is designed for. One thing that might help ease your mind: this is actually a very common situation, especially with certain brokers who don't report cost basis for all types of transactions. The IRS is completely used to seeing Code "B" on Form 8949, and as long as you have your purchase records to support the cost basis you're reporting, you're in good shape. I'd also recommend double-checking your math before submitting - make sure the gain/loss you calculate by subtracting your cost basis (column e) from the proceeds (column d) makes sense based on what you remember about those trades. It's an easy way to catch any data entry errors before filing. You're doing everything correctly by selecting Box B at the top and using Code "B" for each transaction. Don't let the complexity of the instructions psych you out - your situation is straightforward and you've got all the information you need to file accurately.

This is such a helpful thread! I'm in a similar situation but with a twist - we're military and have been stationed overseas for the past year while still owning our primary residence. We rented it out during our deployment but are planning to move back in for at least 6 months before selling. From what I understand, the Section 121 exclusion has special provisions for military personnel that can suspend the 5-year testing period during qualified official extended duty. Does anyone know if this means we can still qualify for the full exclusion even though we haven't physically lived in the house for the past year? We originally lived in it for about 18 months after purchase before the deployment, so we're hoping the military exception will help us meet the 2-year use requirement when combined with the time we'll live there after returning.

This is a great discussion! I wanted to add one more consideration that might be relevant for some folks dealing with Section 121 exclusions - if you've converted part of your primary residence to rental property at any point, you'll need to be careful about depreciation recapture. Even if the overall gain qualifies for the Section 121 exclusion, any depreciation you claimed on the rental portion has to be "recaptured" and taxed at up to 25%. This is separate from the capital gains exclusion. For example, if you rented out a basement apartment for two years and claimed $5,000 in depreciation, that $5,000 would be subject to depreciation recapture tax even if your overall gain is excluded under Section 121. It's not a huge issue for most people, but definitely something to plan for if you've had any rental income from your primary residence. The good news is this only applies to the depreciation you actually claimed - if you were eligible to claim depreciation but didn't, you're generally not required to recapture it (though there are some exceptions).

I think everyone's overthinking this. I've been getting Zelle payments well over the $600 threshold for years (roommates, family help, trip planning where friends send me their portion, etc) and I've never reported it. Nothing has ever happened. The IRS is looking for business income, not you and your roommates splitting the electric bill. They don't have the resources to audit millions of people over personal payment app usage. Just use common sense - if you're making actual income through Zelle (selling stuff regularly, getting paid for services), report it. If it's just money passing through your account where you don't make a profit, don't worry about it.

Just to add my perspective as someone who went through this confusion last year - the distinction everyone is making between personal and business transactions is absolutely key. I was in a very similar situation to you, Emma. I help friends with tech stuff and they reimburse me for parts through Zelle. I also coordinate group trips where people send me money for hotels and activities. My total Zelle receipts were probably around $8,000 last year. What helped me was keeping detailed records with descriptions of each transaction. When tax time came, it was clear that 99% of it was either reimbursements (where I spent my own money first) or personal transfers. The only thing I actually reported was about $400 where I sold some old computer parts I wasn't using anymore - that was actual income since it was profit. For your computer building hobby, as long as you're truly just getting reimbursed for parts at cost and not charging for labor, you're fine. The IRS understands the difference between income and reimbursement. Just keep your receipts for the parts you buy in case you ever need to show the transactions were cost reimbursements. The peace of mind is worth the simple record keeping!