ExpertMedium1 markMultiple Choice
CPA · Question 65 · Area II: Entity Tax Compliance
A partnership pays a guaranteed payment of $20,000 to a partner for services. The partnership has $50,000 of ordinary income before the payment. What is the partner's total income from the partnership?
A partnership pays a guaranteed payment of $20,000 to a partner for services. The partnership has $50,000 of ordinary income before the payment. What is the partner's total income from the partnership?
Answer options:
A.
$20,000
B.
$35,000
C.
$45,000
D.
$70,000
How to approach this question
1. Deduct Guaranteed Payment from Income ($50k - $20k = $30k). 2. Allocate remaining income to partner (50% of $30k = $15k). 3. Add GP ($20k + $15k = $35k).
Full Answer
B.$35,000✓ Correct
$35,000
IRC §707(c). Guaranteed payments are deductible by the partnership and ordinary income to the partner. Net Income = $30,000. Partner's share (50%) = $15,000. Total Income = $20,000 (GP) + $15,000 (Share) = $35,000.
Common mistakes
Forgetting to deduct the GP from partnership income before calculating the distributive share.
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