Wednesday, February 10, 2010


Here is an interesting partnership situation.
Two people own 50% of the partnership, and get 50% of gross income, but pay a different share of the expenses. One guy pays 60% of the expenses and the other guy pays 40%. This calls for a little "creative accounting."
Here is one way to handle it:
Do everything as if expenses were shared equally (using 50% ownership for each).
Then give the one who was allocated too little expense a 'guaranteed payment' to make it come out correctly.
For example: Gross income = $100,000
Partner A's expense = 20000 and his share of gross is $50000) net due is $ 30000
Partner B's expense = 30000--also has $50000 share of gross net due is 20000
Each 50% partner would normally get a K-1 showing $25,000
To correct this give A a guaranteed payment for the difference (30000-20000)= 10000
So now the $100,000 has been reduced to 90,000 to spit equally
Subtract $ 50000 expenses from the $ 90000
Split the remaining $ 40000 equally. ($ 20000 each
Add the Guaranteed payment to A's share giving him $ 30000 which is the same as if he had only been allocated $ 20000 of expense.
Partner B would get $ 20000 and no guaranteed payment.

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