ExpertHard1 markMultiple Choice
CPA · Question 62 · Area V: Entity Taxation
A taxpayer has a 50% interest in a partnership. The partnership agreement states that the taxpayer receives a guaranteed payment of $20,000 for services. The partnership reports $50,000 of ordinary income before the guaranteed payment. What is the taxpayer's total income from the partnership?
A taxpayer has a 50% interest in a partnership. The partnership agreement states that the taxpayer receives a guaranteed payment of $20,000 for services. The partnership reports $50,000 of ordinary income before the guaranteed payment. What is the taxpayer's total income from the partnership?
Answer options:
A.
$25,000
B.
$35,000
C.
$45,000
D.
$20,000
How to approach this question
1. Deduct GP from Income: $50k - $20k = $30k Net Income. 2. Allocate Net Income: 50% * $30k = $15k. 3. Add GP to Partner's Share: $15k + $20k = $35k.
Full Answer
B.$35,000✓ Correct
B
The partnership deducts the guaranteed payment ($20,000) to arrive at ordinary business income ($50,000 - $20,000 = $30,000). The partner reports 50% of the ordinary income ($15,000) PLUS the guaranteed payment ($20,000). Total = $35,000.
Common mistakes
Forgetting that the partnership deducts the GP before allocating income.
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