Question

RE: Guaranteed payments Do you deduct the amount of a guaranteed payment form the ordinary income before you figure out each partners distributive share? Example: Bob, a 50% partner, is to receive a guaranteed payment of $20,000. The partnership had ordinary income of $50,000. Would Bob's distributive share be $25,000? Can someone plese explane guaranteed payments to me. Thank you.

Answer 1

Answer: Yes, Deduct the amount of guaranteed payment from the ordinary Income before we getting each partner's distributive share.

The Amount of Guaranteed payments are the first priority to distribute from Ordinary Income. If there is any balance in the Ordinary Income, then distribute the amount to the partners based on their sharing percentage.

In the given example,

The ordinary income is $50,000.

Each partner had 50% share and

Guaranteed payment of Bob is $20,000

Then total guaranteed payments = 20000÷ 50% = $40,000

Therefore the balance ordinary income = $10000

The share of Bob in the balance ordinary income = 10000×50% =$5000.

Hence total share for Bob = 20000+ 5000 =$25,000.