Hello, my name isXXXXX & I'll be helping you today. My goal is to give you a complete & accurate answer that you can understand.
That is an unusual way to handle setting up your operation.
What he is trying to do is to make your equity accounts equal among the members.
As far as the guaranteed payments are concerned, those should have been expensed on your partnership return, so that your allocation of the partnership income would have been less than if he had not recorded the guaranteed payments.
Exactly, after doing some research he set it up as if each member had to contribute the same amount in either monies or services to keep each member at 25%.
The only difference is that all 4 members would have benefited from the reduction of partnership income by the guaranteed payments whereas only 3 of the members would have reported the guaranteed payments as income.
How the guaranteed payments are setup, I believe is fine. The "3" working members use that as their "paychecks".
Basically, it isn't as bad as it seems on the surface as those guaranteed payments have reduced your partnership income, so without them, your partnership income would increase.
Ah ok I understand, so that we take a bigger "loss" with the way it is setup now.
But I guess the problem is that the loss isn't has large as the $15,000 (at least for 2012)
Wait, does the partnership show a loss?
Let me grab my K1
"Ordinary Business Loss" = -1475. "Section 179 Deduction" = 5,391.
Well, that results in a couple of issues, but the main one is that if you didn't have any money in your equity accounts (the 3 partners), then you wouldn't be able to claim the loss or the Section 179 deduction.
What does the partnership do?
Ah ok I understand that
We are a Audio/Visual equipment rental company
I understand what he's doing, you must have purchased a lot of equipment last year (your first year)?
Not at all
We are actually Brokers
Ok, well that's different
You must have purchased something this year, maybe vehicles?
1 GMC "Box" truck for about $7,000
And then of course some desks, printer, (basic office stuff)
the 179 deduction is 5K+ times 4 = 20,000.
Ok, none of those 179 expenses would have been deductible to the 3 of you without recording the capital contributions the way he did.
Ah ok got ya.
the guaranteed payments are offset by reduced partnership income ie. it would have been income verses the small loss & the 179 deduction.
I just looked at the 4562 and I forgot about some convertors and rental software (which was very expensive), so that is how me came up with the 21k #
Do you understand what I'm saying about the relationship between the guaranteed payments and the partnership income?
Yes I believe so. The guaranteed payments are an expense to the business (loss). So even though it shows an additional $30,0000 over two years as a guaranteed payment. The business still takes it as a loss, which means we take it as a loss individually
Right & the only difference is that the 15K x 3 is income to the 3 of you; but the expense to the partnership is divided by 4
Exactly. Now if the 4th member does not actually contribute services or "work", he shouldn't be able to take the loss correct?
No. That's not correct. His 30K contribution entitles him to be an equal partner to the three of you; assuming that was the original deal.
Ok I thought I read something about needing to actually contribute 250 (or some number) of set hours to be able to take a loss. But no worries.
You answered my question, much appreciated. Now I can explain it to the other members in plain english.
That's another whole issue relating to Passive Losses; I'm sure your CPA has that covered.
Let's hope :)
It's no big deal in any case.
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I have to run, but thank you so much!.
Thanks very much.
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