A client wants to start a partnership with their daughter. They want to provide them with $35,000 a year income and not have them share in the profit or losses. They do want them to share in the ownership 50/50 though. Is the correct way to set this up 50% capital Mom 50% capital for daughter and then 100% Profit/Loss Mom and 0% Daughter?
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You can do what you want, but be sure and have a written agreement, or the IRS will have you follow state law. In the agreement you will give guaranteed payments to daughter, and set up profit /loss any percent you want. -
If mom owns 100% of the profits, this is not a partnership. Mom owns the company entirely and if she pays her daughter $35,000 this should be on payroll or a 1099-NEC. Since this is not really a partnership the term "guaranteed payment" has no relevance.
If they really want a partnership, the daughter would need to have some percentage of profits/ownership. Even a very small percentage would work.Last edited by Snaggletooth; Today, 03:39 AM.Comment
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Snaggletooth, do you have an official site that says you can't form a 50/50 partnership where one partner agrees to forgo all profit/loss in return for a guaranteed payment ?Comment
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No, and it may be possible to set up ownership as 50-50, and consider $35,000 as a guaranteed payment. But there is no point in it, except to add another hoop to tax reporting. The only difference that I can think of would be if the entity were sold and the proceeds would be split.Originally posted by terryats View PostComment
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Maybe the client just wants to pay her daughter with out having payroll to deal with. Just hope see realizes that guaranteed payments are an expense to the partnership, and she will reduce the QBI. The daughter will also pay SE tax, and include the guaranteed payment as regular income. Having said that I agree with you Snaggletooth what's the pointLast edited by terryats; Today, 03:12 PM.Comment
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