Question

How much income should the taxpayer recognize in each of the following situations? a. Julius owns a 25% interest in the Flyer Company, which is organized as a partnership. During the current year, he is paid $14,000 by Flyer as a distribution of earnings. Flyer's taxable income for the year (calculated without any payments made to partners) is $60,000. Julius should recognize an income of $ .

Answer 1

Mr Julius income in the partnership is $15,000

Step-by-step explanation:

In a partnership, partners are taxed on the individual share of income. Here, the interest sharing of Mr Julius in Flyer Company is 25% and the taxable income of Flyer Company is $60,000. Hence, Mr Julius income in the partnership is $60,000 * 25% = $15,000.

Note: $14,000 is not included in Mr Julius income because it is a return on partnership investment. It is treated as reduction in basis of the investment.