Question

Faye, Gary, and Heidi each have a one-third interest in the capital and profits of the FGH Partnership. Each partner had a capital account of $117,500 at the beginning of the tax year. The partnership profits for the tax year were $1,532,100. Changes in their capital accounts during the tax year were as follows:

Faye Gary Heidi Total Beginning balance $117,500 $117,500 $117,500 $352,500 Withdrawals (20,000) (35,000) (10,000) (65,000) Additional contributions 0 0 5,000 5,000 Allocation of profits 510,700 510,700 510,700 1,532,100 Ending balance $608,200 $593,200 $623,200 $1,824,600

In arriving at the $1,532,100 of partnership profits, the partnership deducted $3,600 ($1,200 for each partner) in premiums paid for group term life insurance on the partners. Faye and Gary are 39 years old, and Heidi is 35 years old. Other employees are also eligible for group term life insurance equal to their annual salary. These premiums of $10,000 have been deducted in calculating the partnership profits of $1,532,100.

Compute each partner’s gross income from the partnership for the tax year.

Each partner's gross income from the partnership for the tax year is $

Answer 1

Since, Partnership firm has paid tax on Income of Firm. The same income cannot be taxed in the hands of Partners.In the given case, Firm has to pay tax on profit of $1532100.00 and Distribution of profit to partners is only appropriation of profit.Profit received from firm will not be taxed in the hands of partners.