Jack and Jill decided to pool their money and start a water delivery business. S
ID: 2599815 • Letter: J
Question
Jack and Jill decided to pool their money and start a water delivery business. Since they trusted each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLC.A. If a partnership was formed, how much income will be taxed at the partnership level?
B. For the second year, do they need to file a partnership tax return? Jack and Jill decided to pool their money and start a water delivery business. Since they trusted each other so much, they did not draw up any legal documents for the business. During the first year of business, they earned $50,000 which was net of $10,000 paid to Jill as a guaranteed payment. During the second year of business, they decided to limit their liability exposure by forming an LLC.
A. If a partnership was formed, how much income will be taxed at the partnership level?
B. For the second year, do they need to file a partnership tax return?
A. If a partnership was formed, how much income will be taxed at the partnership level?
B. For the second year, do they need to file a partnership tax return?
Explanation / Answer
A) Partnerships are considered as pass through entity and therefore they are not liable to tax instead partners are liable for self employment tax.
B) Yes for the second year they are required to file an informational partnership tax return.
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