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In: Accounting

José, a cash method taxpayer, is a partner in J&T Accounting Services, a calendar year partnership....

José, a cash method taxpayer, is a partner in J&T Accounting Services, a calendar year partnership. Under the partnership agreement, José is to receive 20% of the partnership’s profits or losses. Each partner is allowed to withdraw $10,000 each month for his or her living expenses. José withdrew $120,000 during the year as his monthly draw in 2019. However, in December, the partnership was short on cash and José was required to invest an additional $10,000 in the partnership. In March 2019, José received $40,000 as his share of distributed 2018 profits. The partnership earnings before partners’ withdrawals for 2019 totaled $1 million. Compute José’s gross income from the partnership for 2019.

Solutions

Expert Solution

José's gross income from the partnership = profit share in total partnership profit or loss

                                                                   = 20% * 1 million    = 20% * 1,000,000

                                                                      = $200,000

The amount of the distributions he receives (a recovery of capital normally) generally does not affect the amount he includes in his gross income.

Jose withdrew $120,000 during the year. This withdrawal is from after-tax earnings.

His investment of $10,000 is contribution to capital.

ekkarill92 answered 1 year ago
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