Chris, a 25% partner in Vista partnership, received a
$20,000 guaranteed payment in 2012 for deductible services
rendered to the partnership. Guaranteed payments were not
made to any other partner. Vista’s 2012 partnership income
consisted of

Net business income before guaranteed payments $80,000

Net long-term capital gains 10,000

What amount of income should Chris report from Vista Partnership
on her 2012 tax return?

(a) The requirement is to determine the amount of
income that Chris should report as a result of her 25% partnership
interest. A partnership is a pass-through entity and its items
of income and deduction pass through to be reported on partners’
returns even though not distributed. The amount to be
reported by Chris consists of her guaranteed payment, plus her
25% share of the partnership’s business income and capital gains.
Since Chris’s $20,000 guaranteed payment is for deductible services
rendered to the partnership, it must be subtracted from the
partnership’s net business income before guaranteed payments of
$80,000 to determine the amount of net business income to be
allocated among partners. Chris’s reportable income from the
partnership includes

Guaranteed payment $20,000

Business income [($80,000 – $20,000) × 25%] 15,000

Net long-term capital gain ($10,000 × 25%) 2,500

$37,500