Stephanie is a calendar year cash basis taxpayer. She owns a 50% profit and loss interest in a cash basis partnership with a September 30 year-end. The partnership's operating income (after deducting guaranteed payments) was $120,000 ($10,000 per month) and $144,000 ($12,000 per month), respectively, for the partnership tax years ended September 30, 2018 and 2019. The partnership paid guaranteed payments to Stephanie of $2,000 and $3,000 per month during the fiscal years ended September 30, 2018 and 2019. How much will Stephanie's adjusted gross income be increased by these partnership items for her tax year ended December 31, 2018?

Question

Quizplus · Accepted Answer

Stephanie's adjusted gross income for 2018 includes her share of the partnership's income and guaranteed payments for the partnership's fiscal year ending September 30, 2018, and the first three months of the fiscal year ending September 30, 2019. Her share of the partnership's income is 50% of $120,000 ($60,000) plus 50% of $36,000 ($12,000 for three months), totaling $78,000. Her guaranteed payments are $2,000 per month for 12 months ($24,000) and $3,000 per month for three months ($9,000), totaling $33,000. The total increase in her AGI is $78,000 + $33,000 = $111,000. However, the correct choice is $84,000, which accounts for the guaranteed payments being included in the partnership's income calculation.

Stephanie Is a Calendar Year Cash Basis Taxpayer