. A toy store is organized as a partnership with four partners who split an equal profits...
Question:
. A toy store is organized as a partnership with four partners who split an equal profits interest in the company, Chris, Daniel, Steve, and Chelsea. As of the end of the partnership’s prior tax year, the four partners had the following, respective ending outside tax bases: $30,000, $10,000, $25,000, and $45,000. During the current tax year, the following occurred with the partnership:
• Received $100,000 for toy store sales made during the year
• Incurred $30,000 in tax MACRS depreciation on equipment purchased during the year
• Paid $80,000 in wages for employees (none of which are partners)
• Paid $5,000 in cash distributions to each of its partners
• Paid $2,000 in penalties for filing its Federal tax return late
• Paid $20,000 on interest on its debt but didn’t pay off any principal (ignore any limits on interest deductions)
• Received $2,000 in interest income from a municipal bond it held for the city of Fairfax
a. What is the adjusted tax basis for each partner at the current tax year after incorporating the above activities that occurred during the year without consideration for the role of the QBI deduction for each partner?
b. Ignoring the information for the specific business activity about and each partners’ profits interest percentage, assume that Chris, Daniel, Steve, and Chelsea are allocated the following amounts of qualified business income (QBI) in the current year: $20,000, $30,000, $40,000, and $50,000, respectively. What is the amount of QBI deduction that each partner will be able to take on their personal tax returns? Ignore QBI limitations based on wages and potential phase-outs of the deduction based on the partner’s wealth. In other words, assume the partner gets the full amount of QBI deduction potentially available.
