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29 February, 14:09

Under a partnership agreement, sarah is to receive 25% of the partnership's income, but not less than $12,000. the partnership's net income for this year was $32,000. what amount can the partnership deduct as a guaranteed payment, and what amount of income is sarah required to report on her individual tax return?

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  1. 29 February, 14:31
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    Given: -

    Sarah's income = 25% of the partnership income but not less than $12,000.

    Net income of partnership for the year = $32,000.

    To find: -

    1) Amount that can be deducted by partnership as guaranteed payment.

    2) Income that Sarah is to report on her tax return.

    Solution: -

    Partnership income = $32,000

    Sarah's share = 25% of 32000 = $8,000

    But Sarah must receive $12,000 (Shortfall $12,000-$8,000=$4,000)

    So, 1) $4,000 can be deducted by partnership as guaranteed payment.

    2) Income that Sarah needs to report on her tax return = $12,000.
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