Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLP.

a.Was a partnership formed during the first year?
b.If a partnership was formed, how much income will the partnership pay tax on?
c.For the second year, do they need to file a partnership tax return?

Question

Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLP.
​
a.Was a partnership formed during the first year?
b.If a partnership was formed, how much income will the partnership pay tax on?
c.For the second year, do they need to file a partnership tax return?

Quizplus · Accepted Answer

The Answer of Jack and Jill decided to pool their money and start a water delivery business. Since they trust each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLP.
​
a.Was a partnership formed during the first year?
b.If a partnership was formed, how much income will the partnership pay tax on?
c.For the second year, do they need to file a partnership tax return?

Jack and Jill Decided to Pool Their Money and Start