Under a partnership agreement, Sarah is to receive 25 percent of the partnership
ID: 2598666 • Letter: U
Question
Under a partnership agreement, Sarah is to receive 25 percent of the partnerships income, but not less than $12,000. The partnerships net income for this year was $32,000. What amount can the partnership deduct as a guaranteed payment, and what amount of income is Sarah required to report on her individual tax return?Under a partnership agreement, Sarah is to receive 25 percent of the partnerships income, but not less than $12,000. The partnerships net income for this year was $32,000. What amount can the partnership deduct as a guaranteed payment, and what amount of income is Sarah required to report on her individual tax return?
Explanation / Answer
Partnership can deduct as a guaranteed payment = $4000
Sarah required to report on her individual tax return = $12000
Explanation;
As per information of the Sarah have guarantee of minimum $12000
Sarah share in the income of partnership = 25%
Net income for the year = $32000
Thus share of Sarah in net income ($32000 * .25) = $8000
Partnership can deduct as a guaranteed payment ($12000 – $8000) = $4000
As we know that Sarah will receive a total amount of $12000 that is why Sarah required to report on her individual tax return $12000
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