Sandi and Jodie are partners who operate Household Humanities. Sandi owns 60% and Jodie owns 40% of Household. During the current year, Household has the following results:
Revenues$165,000
Operating expenses45,000
Sandi's salary50,000
Jodie's salary45,000
Municipal bond interest income3,000
Long-term capital loss30,000
Charitable contributions10,000
?
a.How must Household report these results to Sandi and Jodie? Show calculations. b.Sandi is the head of Household with two dependent children (ages 17 and 18). She has $29,000 of other income, which includes a $6,000 short-term capital gain. Sandi has $13,000 of other allowable itemized deductions. Calculate Sandi's taxable income and income tax liability for 2019.?
What will be an ideal response?
| a. | Because the income from a partnership is taxed at the partner level, those items that receive special treatment must be reported separately to the partners. Household has operating income of $120,000 ($165,000 - $45,000). Salaries paid to partners are not deductible by the partnership, and they are not taxable to the partners. The remaining items must be separately reported to each partner. | ||
| Sandi | Jodie | ||
| Operating income | $72,000 | $48,000 | |
| Municipal bond interest income | 1,800 | 1,200 | |
| Long-term capital loss | 18,000 | 12,000 | |
| Charitable contributions | 6,000 | 4,000 | |
| b. | Sandi's taxable income is $58,600 and her tax liability is $6,440. She must combine the results from the partnership with her other income and expenses in calculating her taxable income. The municipal bond interest is excluded from tax. The $18,000 long-term capital loss is combined with her $6,000 short-term capital gain, resulting in a $12,000 long-term capital loss. She can only deduct $3,000 of the net capital loss. The charitable contributions increase her allowable itemized deductions to $19,000. She has a QBI deduction of $14,400 (20%×$72,000). She also is allowed a $500 family tax credit for each dependent child age 17 or older. | ||
| Other income ($29,000 - $6,000) | $23,000 | ||
| Partnership operating income | 72,000 | ||
| Capital loss deduction | (3,000) | ||
| Adjusted gross income | $92,000 | ||
| Itemized deductions ($13,000 + $6,000) | (19,000) | ||
| Less: QBI Deduction | (14,400) | ||
| Taxable income | $58,600 | ||
You might also like to view...
Using the business entity assumption, the financial statements are prepared separate and distinct from the owners of the entity
Indicate whether the statement is true or false
The government can get access to an individual's stored e-mail pursuant to a legitimate criminal
investigation without a search warrant. Indicate whether the statement is true or false
A minor cannot act as an agent
a. True b. False Indicate whether the statement is true or false
Elliot holds a bond in a health care company that matures after a period of ten years. Taken together with the interest on the principal amount, on maturity, Elliot will receive a sum of $55,000, which is the bond's _____.
A. exit rate B. par value C. current yield D. capital gain