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Tax return for a partnership

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William and James invested $50,000 and $25,000 respectively in a business enterprise. During the first year of operation, their business had taxable income of $12,000.

a. If their business is organized as a partnership, with profits and losses shared based on the proportion of each partner's original investment, how much of the income will each claim on his personal tax return?

b. After the initial year of success, a weakened economy caused their business to falter. Following four successive years of losses, the assets of the business were $30,000 and the debts were $50,000. The two owners decided to liquidate the business. What are the financial consequences of the dissolution of the business to each owner?

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Solution Summary

Partners' tax returns are calculated according to taxable income and financial consequences of the dissolution of the partnership is explained.

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a. Since the business is a partnership, the owners' shares of the profits and losses are proportionate to what each invested.

So, for William, $50,000 divided by the sum of $50,000 and $25,000 = 0.667 or 2/3 of the business. ...

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Umut Oltulu, MBA
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  • BSc, Dokuz Eylul University
  • MBA, Texas A&M University-Kingsville
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