Guaranteed Payments

[oceanlovin'ea]

I am doing a partnership return for a new partnership. The partners took out an amount of money each month during the year. It started out as a higher amount and went down as expenses went up. My question is Do guaranteed payments have to be the same amount each month? They took out the same amount for each of the partners.

It makes sense to me that at least some of the money is guaranteed payments.

Linda F

[Bees Knees]

Guaranteed payments can be any amount. They are not based on ownership percentage, but rather, services performed.

Just think of guaranteed payments as the equivalent of wages for a shareholder / employee of a corporation.

[oceanlovin'ea]

Thanks

Bees Knees. I thought that was correct but just wanted to make sure.

I thought this would be an easy return, but it is a short tax year since they bought restaurant 6/01. So I had to redo depreciation and am not quite sure how to do next years but I will get into that after taxseason is over.

I really appreciate all the help I get on this board.

linda F

[Matt Sova]

Were they GP

Some could also have been return of capital. Keep in mind that GP will reduce the ptnrship income and if it has a loss then they are still paying SE tax on the GP's.

[oceanlovin'ea]

So Matt

by using the money as GP the business does show a loss of around $2100. So I should make part of those payments return of capital so that the net is close to breaking even. Is that what you are saying?

[Matt Sova]

Ptnrship

I just re-read the original post and see it is a ptnrship not an LLC. As you have probably read from my previous posts I do not threat LLC income as SE taxable, only GP's. But, with a General Partnership the earnings are SE taxable. Therefore, the loss flowing through on the K-1 will net against the GP's in calculating the SE tax.

Sorry for the confusion.