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Partnership Income Taxation

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Diamond Co. and Bill are equal partners in the calendar year F & F Partnership. Diamond Co. uses a fiscal year ending June 30, and Bill uses a calendar year. Diamond Co. receives an annual guaranteed payment of $50,000. F & F's taxable income (after deducting Diamond Co.'s guaranteed payment) is $40,000 for 2009 and $50,000 for 2010.
a. What is the amount of income from the partnership that Diamond Co. must report for its tax year ending June 30, 2010?
b. What is the amount of income from the partnership that Bill must report for her tax year ending December 31, 2010?
c. Assume Diamond Co.'s annual guaranteed payment is increased to $60,000 starting on January 1, 2010, and the partnership's taxable income for 2009 and 2010 (after deducting Diamond Co.'s guaranteed payment) is the same (Le., $40,000 and $50,000, respectively). What is the amount of income from the partnership that Diamond Co. must report for its tax year ending June 30, 2010?

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Solution Summary

This solution calculates the partnership income for the partnership and also for Bill (a & b), and also calculates the income for question C. All calculations are shown and explained.

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a. What is the amount of income from the partnership that Diamond Co. must report for its tax year ending June 30, 2010?

$50,000 + 50% of $40,000 = 50,000 + 20,000 = $70,000
Guaranteed payment + half of taxable income, since they are equal partners = total amount of income reported from the partnership.

b. What is the amount of income from the partnership that Bill must report for her tax year ending December 31, 2010?

$50,000 x .50 = $25,000
Taxable ...

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