Taxes: Flow Through of Income & Losses - Partnership

Question 1

Taxes:

Flow Through of Income & Losses - Partnership

Answer 1

Flow Through of Income & Losses - Partnership
Income
- reported on partner’s returns
- partners modify adj basis for these items
- receive a share of income/loss according to the partnership agreement
- substantial economic effect test

Question 2

Taxes:
Flow Through of Income & Losses - Partnership
Distributive Share

Answer 2

Distributive Share
Two Step Process
1. remove all separately stated items & report of K-1
2. remaining items produce net ordinary income/loss
Separately Stated Items
- dividends, capital gains/losses, charity, investment income, sec 179 expense, and qualified dividends. (Sec 1245 recapture never separately stated)
- capital withdrawls do not affect income
- partnership may be cash basis unless a “tax-shelter” or one partner is a C Corp
- May elect to amortize organizational and start-up (same rules as corporation)
- simplified rules for large partnerships
- GP’s distributive shares are subject to self-employment tax
- guaranteed payments for both GP & LP are subject to the self employment tax
- extension is 5 months

Question 3

Taxes:
Flow Through of Income & Losses - Partnership
Family Partnerships

Answer 3

Family Partnerships

• special limits
• if capital is material income producing factor, income allocated to donated interest cannot exceed capital percentage
• income must be adjusted by value of services contributed by donor family members

Question 4

Taxes:
Flow Through of Income & Losses - Partnership
Loss Limitations

Answer 4

3 Hurdles to Deduct Losses:

1. partner must have enough basis to deduct loss
2. deduct loss only to extent of ‘at risk’ amount. (basis - share of nonrecourse debt)
3. if passive loss, only to extent of passive income
   * unused losses carried forward*