Question

Kim received a 1/3 profits and capital interest in Bright Line, LLC in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $34,000 guaranteed payment each year for ongoing services she provides to the LLC. For X4, Bright Line reported the following revenues and expenses: Sales - $154,000, Cost of Goods Sold - $94,000, Depreciation Expense - $50,000, Long-Term Capital Gains - $19,000, Qualified Dividends - $6,400, and Municipal Bond Interest - $3,400. How much ordinary business income (loss) will Bright Line allocate to Kim on her Schedule K-1 for X4?

a) ($24,000).
b) $200.
c) $3,600.
d) $10,000.
None of the choices will be reported as ordinary business income (loss) on Schedule K-1.

Answer 1

e) None of the choices will be reported as ordinary business income (loss) on Schedule K-1.

Step-by-step explanation:

Kim's share on the partnership:

$34,000 per year in guaranteed payments

1/3 profits and capital

net operating income = $154 - $94 - $50 = $10,000 - $35,000 = -$25,000 ordinary loss

Bright Line, LLC, will report an ordinary loss of $25,000 (Form 1065). 1/3 of the $25,000 loss = $8,333 will be included in Kim's Schedule K-1 for X4. Everyone who has a partnership interest must file a Schedule K-1 tax form on an annual basis and include their share of the partnership's gains or losses.