Question

Nick, Chris, Stacey, and Mike are each 25% partners in Liberty Partnership, a general partnership. During the current year, the partnership had revenues of $300,000 and nonseparately allocated business expenses of $100,000, including a guaranteed payment of $30,000 to Nick for services rendered. Also, during the current year, the partnership had interest income of $10,000 and charitable contributions of $16,000. With regard to activity in the partnership, what should Stacey report on her income tax return for the current year?

Answer 1

Stacey report on her income tax return in three categories

1. Total ordinary income = $50,000

2. Interest income = $2,500

3. Charitable contributions = $4,000

Step-by-step explanation:

Basically, Stacey report on her income tax return in three categories

1. Total ordinary income: It is somewhat same as net income

So, the ordinary income equal to

= (Revenues - expenses) × partnership percentage

= ($300,000 - $100,000) × 25%

= $50,000

2. Interest income: It is computed below

= Interest income × partnership percentage

= $10,000 × 25%

= $2,500

3. Charitable contribution: It is computed below

= Charitable contributions × partnership percentage

= $16,000 × 25%

= $4,000