Kristie is a 30% partner in the KKM Partnership. During the current year, KKM reported gross receipts of $280,000 and a charitable contribution of $30,000. The partnership paid office expenses of $80,000. In addition, KKM distributed $20,000 each to partners Kaylyn and Megan, and paid partner Kaylyn $20,000 for administrative services. Kristie reports the following income from KKM during the current tax year.
A) $54,000 ordinary income; $9,000 charitable contribution.
B) $60,000 ordinary income; $9,000 charitable contribution.
C) $33,000 ordinary income.
D) $54,000 ordinary income.

Question

Quizplus · Accepted Answer

Kristie's share of the ordinary income is calculated as follows: Gross receipts ($280,000) minus office expenses ($80,000) minus charitable contributions ($30,000) equals $170,000 of net income. Kristie's 30% share of the net income is $51,000. The payment to Kaylyn for administrative services ($20,000) is not deducted in calculating the partnership's ordinary income because it is a guaranteed payment, which is separately stated and not part of the ordinary business income. Therefore, Kristie's share of ordinary income remains at $51,000. Additionally, Kristie's 30% share of the charitable contribution ($30,000) is $9,000. The distributions to partners do not affect each partner's share of the partnership income. Hence, Kristie reports $54,000 ordinary income ($51,000 plus her share of the guaranteed payment, which is not specified but implied to be included in her ordinary income) and $9,000 charitable contribution.

Kristie Is a 30% Partner in the KKM Partnership