Kendall is a partner in a legal firm. She is guaranteed a payment of $70,000 each...
Kendall is a partner in a legal firm. She is guaranteed a payment of $70,000 each year without regard to the firm's profits or losses. Assuming the payment is correctly reported to her on a scheduled K-1, how should Kendall report this income on her tax return?
a) passive income, reported on Schedule E.
b) nonpassive income, reported on Schedule E.
c) wages, salaries, tips, etc., reported directly on Form 1040.
d) other income, reported directly on Form 1040.
Homework Answers
Solution:
Option (b) Non passive income, reported on schedule
E.
Reason:
Kendall is a partner in a LLC gets guaranteed payment of $70,000
which means this is a non passive activity. Non passive activity is
the one where the individual is materially involved and
participates in decision making. Generally non passive partners are
given guaranteed payments.
hence Kendall would report this as Non Passive Income, on Schedule
E as mandated by IRS.
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