Question

Rochelle is a limited partner in Megawatt Partnership. For 2022, her schedule K-1 from the partnership reported the following share of partnership items:

Ordinary income $ 39,600
Section 1231 loss (3,100)
Nondeductible expense 2,085
Cash distribution 6,300
Required:

Calculate the net impact of the given items on Rochelle’s 2022 taxable income. Assume that Rochelle does not qualify for the QBI deduction.

Assume that Rochelle’s marginal tax rate is 35 percent. Calculate her 2022 after-tax cash flow as a result of her interest in Megawatt.

Answer 1

The net impact of the given items on Rochelle’s 2022 taxable income is $38,585. Rochelle’s 2022 after-tax cash flow as a result of her interest in Megawatt Partnership is $13,499.75.

Step-by-step explanation:

The net impact of the given items on Rochelle’s 2022 taxable income can be calculated as follows:

Net income = Ordinary income - Section 1231 loss + Nondeductible expense = $39,600 - $3,100 + $2,085 = $38,585

Since Rochelle is a limited partner, her share of partnership income is not subject to self-employment tax. Therefore, her taxable income is $38,585.

To calculate Rochelle’s after-tax cash flow, we multiply her taxable income by her marginal tax rate:

After-tax cash flow = Taxable income * Marginal tax rate

= $38,585 * 0.35

= $13,499.75

Therefore, Rochelle’s 2022 after-tax cash flow as a result of her interest in Megawatt Partnership is $13,499.75.

Answer 2

Rochelle's net impact on taxable income in 2022, considering the partnership items reported on her K-1, amounts to a taxable income increase of $38,415 ($39,600 - $3,100 - $2,085). At a marginal tax rate of 35 percent, her tax liability due to this income is approximately $13,447.25 ($38,415 * 0.35). Considering the cash distribution of $6,300, her after-tax cash flow from the Megawatt Partnership for 2022 will be $22,852.75 ($6,300 - $13,447.25).

Step-by-step explanation:

The partnership items on Rochelle's K-1 include ordinary income of $39,600, Section 1231 loss of $3,100, and nondeductible expenses of $2,085. The net impact on her taxable income can be calculated by subtracting the Section 1231 loss and nondeductible expenses from the ordinary income: $39,600 - $3,100 - $2,085 = $38,415. This represents the taxable income increase attributed to her partnership interest.

Rochelle's tax liability resulting from this taxable income is determined by multiplying it by her marginal tax rate. With a marginal tax rate of 35 percent, her tax due on the increased taxable income amounts to approximately $13,447.25 ($38,415 * 0.35).

Considering the cash distribution of $6,300, Rochelle's after-tax cash flow from her interest in the Megawatt Partnership for the year 2022 can be calculated by subtracting the tax liability from the cash distribution: $6,300 - $13,447.25 = $22,852.75. This amount represents the cash flow she will receive after accounting for her tax obligation due to the partnership's income."