Guaranteed Payments
Response to the following problem:
1. What are guaranteed payments to partners and how are they treated by the partnership and the partner?
2. Guaranteed Payments and Allocation of Partnership Income. (Obj. 3) ABC partnership provides for "salaries" (guaranteed payments) of $70,000, $64,000, and $60,000 for partners A, B, and C, respectively. After the guaranteed payments are deducted, the partnership agreement calls for sharing of profits and losses as follows: A - 40%; B - 35%; and C - 25%.
a. If partnership profits before the guaranteed payments are $120,000, what amount of income from the partnership should each partner report on his or her own personal income tax return?
b. How would your answer to Part a. change if partnership profits before guaranteed payments were $220,000 (instead of $120,000)?