Roger,Ellen,Drew and Cindy are equal partners in a local pub.The pub reports the following items for the current year: $\begin{array}{lr}
\text { Business revenue } & \$ 1,770,000 \
\text { Business expenses } & 1,000,000 \
\text { Investment expenses } & 160,000
\end{array}$ Each partner receives a Schedule K-1 with one-fourth of the preceding items reported to him/her.How must each individual report these results on his/her Form 1040?
A)$192,500 on Schedule E;$40,000 on Schedule A.
B)$257,667 on Schedule E;$40,000 on Schedule A.
C)$385,000 on Schedule E;$40,000 on Schedule A.
D)$770,000 on Schedule E;$160,000 on Schedule A.

Question

Quizplus · Accepted Answer

The net income from the pub is calculated by subtracting the business expenses and investment expenses from the business revenue: $1,770,000 - $1,000,000 - $160,000 = $610,000. Each partner's share is one-fourth of this amount, which equals $152,500. This amount should be reported on Schedule E as income from partnerships. Investment expenses are not typically deductible on Schedule A for most taxpayers due to changes in tax laws that limit the deductibility of investment expenses. Therefore, the correct reporting would be $152,500 on Schedule E, and investment expenses would not be separately reported on Schedule A by the individual partners.

Roger,Ellen,Drew and Cindy Are Equal Partners in a Local Pub