Phil and Bill each own a 50 percent interest in P&B Interests. P&B Interests has ordinary income for the year of $35,000 before guaranteed payments to Phil. If Phil receives guaranteed payments of $20,000 during the tax year, what is the total income or loss that should be reported by Bill from the partnership for this tax year?

Question

Quizplus · Accepted Answer

First, we need to calculate the partnership's income before considering the guaranteed payments. 
$35,000 ordinary income - $20,000 guaranteed payments to Phil = $15,000 remaining income.
Since Phil owns a 50% interest, he is allocated 50% of the remaining income, which is $7,500. 
Bill also owns a 50% interest, so he is allocated the other $7,500. Therefore, Bill should report $7,500 of income from the partnership.

Phil and Bill Each Own a 50 Percent Interest in P&B