Problem

The partnership agreement of the G&P general partnership states that Gary will receive a guaranteed payment of $22,500, and that Gary and Prudence will share the remaining profits or losses in a 45/55 ratio. For year 1, the G&P partnership reports the following results:

Sales revenue $ 95,200
Gain on sale of land (§1231) $ 6,800
Cost of goods sold $ (43,700 )
Depreciation-MACRS $ (18,000 )
Employee wages $ (17,000 )
Cash charitable contributions $ (4,700 )
Municipal bond interest $ 5,700
Other expenses $ (3,800 )

a-1. How much ordinary income (loss) is allocated to Gary for the year?

a-2. Compute Gary's share of separately stated items to be reported on his year 1 Schedule K-1, including his self-employment income (loss).

Description Total Amount 45% Allocated to GarySeparately
Stated Items on Schedule K-1:
Section 1231 gains $ $
Cash charitable contributions $ $
Guaranteed payment $ $
Municipal bond interest $ $
Self-employment income. $ $

b. Compute Gary's share of self-employment income (loss) to be reported on his year 1 Schedule K-1, assuming G&P is a limited partnership and Gary is a limited partner.

c. What do you believe Gary's share of self-employment income (loss) to be reported on his year 1 Schedule K-1 should be, assuming G&P is an LLC and Gary spends 2,000 hours per year working there full time?