Kim received a 1/3 profits and capital interest in Bright Line, LLC in exchange

Question

Kim received a 1/3 profits and capital interest in Bright Line, LLC in exchange for legal services she provided. In addition to her share of partnership profits or losses, she receives a $30,000 guaranteed payment each year for ongoing services she provides to the LLC. For 2018, Bright Line reported the following revenues and expenses: Sales $150,000, Cost of Goods Sold $90,000, Depreciation Expense $45,000, Long-Term Capital Gains $15,000, Qualified Dividends $6,000, and Municipal Bond Interest $3,000. How much total income (loss) will Bright Line allocate to Kim on her Schedule K-1 for 2018?

Explanation / Answer

Bright Line LLC will be reporting on page 1 of Form 1065,an ordinary loss of $15000 which is ($150000-$90000-$45000-$30000)= $15000.

1/3rd of $15000 = $5000 must be allocated to Kim on Schedule K-1

Note: Guaranteed payments have no effect on Kim's outside basis.

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