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Big Red Company is a partnership, owned 75% by Julie (basis in partnership of $7

ID: 2450650 • Letter: B

Question

Big Red Company is a partnership, owned 75% by Julie (basis in partnership of $75,000) and 25% by Mike (basis in partnership of $25,000). For the current year, Big Red’s activities consist of the following items:

Gross Revenue -$1,000,000

Dividends Received (from 10% owned corp)- 100,000

LTCG- 25,000

STCL- 10,000

Cost of Goods Sold- 430,000

Guaranteed payments ($75,000 to Julie and $75,000 to Mike)

Admin Expense- 200,000

Charitable Contributions- 50,000

Distribitions to Partners ($75,000 to Julie and $25,000 to Mike)

A) Compute Big Red's total partnership ordinary income

B) Specifically identify Big Red's seperately stated items

C) How much of Julie's income from Big Red will be subject to SE tax?

Explanation / Answer

Ans-

A) Big Red's total partnership ordinary income

Gross Revenue -                $1,000,000

Less-Cost of goods sold     $430,000

Gross profit                         $570000

Less-

Admin Expense                ($200,000)

Charitable Contributions      ($50,000)

Distribitions to Partners        ($100000)

Odinary Income                      $ 220000

B) Big Red's total income

Income from Business             $220000

Disvidend received                  $100000

LTCG                                       $20000

STCL                                       ($10000)

Total income                          $330000

C) Total Julie's income from Big Red will be subject to SE tax

Amount received as salary            $75000

Share of proft (75%330000)            $247500

                                 Total              $322500