Nicholas, a 1/3 partner, received a guaranteed payment in the current year of $50,000. Partnership income before consideration of the guaranteed payment was $20,000. Assuming no loss limitation rules apply, Nicholas reports a $10,000 ordinary loss from partnership operations, and the $50,000 guaranteed payment as ordinary income.

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Nicholas is entitled to a guaranteed payment of $50,000, which is treated as ordinary income. The partnership income before the guaranteed payment was $20,000, and Nicholas reports a $10,000 ordinary loss from partnership operations. Therefore, his net ordinary income from the partnership is $40,000, which is the $50,000 guaranteed payment minus the $10,000 ordinary loss.

Nicholas, a 1/3 Partner, Received a Guaranteed Payment in the Current