Jim Johnson has 40% interest in Richards and Johnson, LLP. The partnership has the following activity for the year:
Sales $180,000
Cost of Goods Sold 105,000
Guaranteed Payment to Ron Richards 25,000
Depreciation 11,000
Interest Expense 1,000
Tax-Exempt Income 1,500
Health Insurance Premiums for Jim Johnson 700
Health Insurance Premiums for Ron Richards 700
Calculate Jim’s share of ordinary income from the partnership. Calculate Jim’s share of separately stated items that will appear on his Schedule K-1 from Richards and Johnson, LLP.
i need help with this please
To calculate Jim's share of ordinary income from the partnership, we need to determine the net ordinary income of the partnership first. Net ordinary income is calculated by subtracting the partnership's deductible expenses from its gross income.
Gross income can be calculated by adding the following items:
1. Sales: $180,000
Deductible expenses can be calculated by subtracting the following items from the total costs:
1. Cost of Goods Sold: $105,000
2. Depreciation: $11,000
3. Guaranteed payment to Ron Richards: $25,000
4. Interest Expense: $1,000
Net ordinary income = Gross income - Deductible expenses
Net ordinary income = $180,000 - ($105,000 + $11,000 + $25,000 + $1,000)
Net ordinary income = $180,000 - $142,000
Net ordinary income = $38,000
Now, let's calculate Jim's share of ordinary income based on his ownership percentage of 40%.
Jim's share of ordinary income = Net ordinary income * Jim's ownership percentage
Jim's share of ordinary income = $38,000 * 0.40
Jim's share of ordinary income = $15,200
Next, we need to calculate Jim's share of separately stated items that will appear on his Schedule K-1 from Richards and Johnson, LLP.
Separately stated items are those that are reported separately on the partner's individual tax return (Schedule E). They include items such as tax-exempt income, guaranteed payments, and other specific deductions or credits.
In this case, the separately stated items are:
1. Tax-Exempt Income: $1,500
2. Guaranteed Payment to Ron Richards: $25,000
3. Health Insurance Premiums for Jim Johnson: $700
Jim's share of separately stated items is based on his ownership percentage of 40%.
Jim's share of separately stated items = (Tax-Exempt Income + Guaranteed Payment to Ron Richards + Health Insurance Premiums for Jim Johnson) * Jim's ownership percentage
Jim's share of separately stated items = ($1,500 + $25,000 + $700) * 0.40
Jim's share of separately stated items = $27,200 * 0.40
Jim's share of separately stated items = $10,880
Therefore, Jim's share of ordinary income from the partnership is $15,200 and his share of separately stated items that will appear on his Schedule K-1 is $10,880.