Question

Please fill out the IRS Tax Form Schedule K1

Please refer to the multiple-choice solution below. Choose one of the partners (Murray or Parker) and prepare a Schedule K-1 based on the information provided (please find it on Google on your own). You must include the name of the partnership, the name of the partner, the three items that must be reported separately, and the ordinary income. If you are wondering, Section 1231 loss is similar to capital loss but has its own line

[6] For the current year, the Murray and Parker Partnership had book income of $100,000, which included the following: Long-term capital gain $ 7,000 Sec. 1231 loss (3,000) Dividends 200 Interest paid to partners for use of capital 12,000 The partners share profits and losses equally. What amount of partnership income (excluding all partnership items which must be reported separately) should each partner report in his or her individual income tax return for the current year? A. $47,900 B. $48,000 C. $50,000 D. $53,900 The correct answer is A. A. A partnership's ordinary income is the portion of taxable income not required to be stated separately Sec. 702(a)(8)]. The interest paid to partners is a guaranteed payment which results in an ordinary deduction. Book income may be adjusted to ordinary income by excluding all items of income and adding back all deduction and loss items, which must be separately stated. The partnership's ordinary income is Book income $100,000 Add back: Sec. 1231 loss 3,000 Subtract: Long-term capital gain (7,000) Dividends (200) Partnership ordinary income $ 95,800 - Because the partners share profits and losses equally, each partner's share of partnership income is $47,900 ($95,800 50%). B. The dividends must be subtracted to arrive at partnership ordinary income. C. The book income must be adjusted to arrive at partnership ordinary income. D. The partnership ordinary income does not equal $100,800.

Answer 1

Total book income 100,000

Add: losses u/s 1231 3000

Less:long term (7000)

capital gain (w.n 1)

Interest paid to partner _

Dividends (200)

Total 95,800

Income of each partner 95800÷2=47,900

W.n 1 long term capital gain is part of capital gain so it is not taxed under bussiness income