MGAD65H3 Lecture Notes - Lecture 12: Tax Rate, Dividend Tax, Accrual

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ceruleanraccoon960

5 Apr 2020

School

UTSC

Department

Financial Accounting

Course

MGAD65H3

Professor

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Document Summary

If the partner is a corporation it picks up its share of income from partnership and pays the income tax using the appropriate rate. If the partner is an individual that person picks up his/her share of income from partnership and pay taxes at their marginal tax rates. If an individual/trust is a member of the partnership, then partnership has a calendar year-end. How is a partnership taxed: partnerships computes income as if it was a separate person resident in canada, generally starting with accounting income and add/deduct amounts to arrive at division. Individuals claim non- refundable tax credits on personal returns, whereas corporations deduct amounts in respect of donations and dividends on corporate returns): partnership can deduct cca in computing division b income. Distributions to partners are not deductible in computing division b income. Adjusted stub period accrual (aspa: aspa is an estimate of the corporate partner"s share of partnership income for the remaining months.

Related Questions

Partnerships
Determine whether the following statements are True or False: TRUE FALSE

1. Guaranteed payments to partners do not reduce the ordinary income of the partnership.

2. Non recourse borrowing of a partnership increases threat risk basis of each partner in interest in the partnership.

3. Tax exempt interest income decreases the basis of each partner's interest in the partnership.

4. A partner's basis in a partnership equals the fair market value of the property contributed, plus the partner's share of all liabilities, minus any liability of the partner assumed by the partnership.

5. A capital loss is deductible in order to determine the ordinary income of a partnership.

6. In computing the ordinary income of a partnerships, charitable contributions are not deducted.

7. The passive loss rules apply to a partner in a partnership.

8. A partner does not recognize any income when services are exchanged for a partnership interest.

9. An ordinary loss if fully deductible by a partner without regard to his partnerships basis.

10. The holding period of property acquired by a partnership as a contribution by a partner includes the period during which the property was held by the contributing partner.

11. After the initial formation of a partnership, the partner's basis will decrease by their pro rata share of losses.

12. Under Section 721, when a partner contributes property with a FMV that is higher than the property's adjusted basis, a pre contribution gain is suspended and will be allocated 100% to the contributing partner when the property is sold by the partnership.

13. Under Section 721, the partnership's basis in the contributed property iis the contributors fair market value.

14. Section 1245 gains are separately stated items for a partnership.

15. Under Section 721, if property contributed to a partnership is subject to a liability, a taxable gain may occur which would reduce a partner's basis.

scarletbear126

11. Bread Corporation is a C corporation with earnings of $150,000. It paid $60,000 of dividends to its sole shareholder, Gerald. Gerald also owns 100% of Butter, an S Corporation. Butter had net taxable income of $40,000 and made a $30,000 distribution to Gerald. What total income will Gerald report from Bread and Butterâs activities?

$90,000

$190,000

$150,000

$100,000

12. At the first of the year, Arch and Bean contribute cash equally to form the JK partnership. Arch and Bean share profits and losses in a ratio of 75% to 25% respectively. For the current year, the partnership's ordinary income was $40,000. A distribution of $5,000 was made to Arch during the current year. What amount of ordinary income should Bean report from the JK partnership?

$5,000

$20,000

$10,000

$40,000

13. Identify which of the following statements is true.
All cash distributions from a partnership require the partners to pay taxes on those distributions.

Distribution of partnership income in the form of cash to partners is generally taxable to the

partners as long as there is sufficient basis.

If property distributions exceed the partner's basis in the partnership interest, a partner would not have to recognize gain on a distribution from the partnership.

All of the above are true.

14. Stan had a basis in his 50% partnership interest at the beginning of this year of $20,000 in a partnership in which he actively participates. There was no change in partnership liabilities during the year. The partnership's ordinary loss this year was $60,000 and the partnership had no separately stated items. The deductible loss from the partnership reported on Stan's personal income tax return this year is

$20,000

$0

$60,000

$30,000

15. The Qualified Business Income Deduction applies to individuals who own an interest in a:

C Corporation

Both a Partnership and an S Corporation

A partnership

S Corporation

Bryan and Cody each contributed $120,000 to the newly formed BC Partnership in exchange for a 50% interest. The partnership used the available funds to acquire equipment costing $200,000 and to fund current operating expenses. The partnership agreement provides that depreciation will be allocated 80% to Bryan and 20% to Cody. All other items of income and loss will be allocated equally between the partners.

Upon liquidation of the partnership, property will be distributed to the partners in accordance with their capital account balances. Any partner with a negative capital account must contribute cash in the amount of the negative balance to restore the capital account to $0.

In its first year, the partnership reported an ordinary loss (before depreciation) of $80,000 and depreciation expense of $36,000. In its second year, the partnership reported $40,000 of income from operations (before depreciation), and it reported depreciation expense of $57,600.

a. Calculate the partners' bases in their partnership interests at the end of the first and second tax years.

	Bryan's Basis	Cody's Basis
Capital contribution-Year 1	$	$
Loss allocation-Year 1	$	$
Depreciation allocation-Year 1	$	$
Basis at the end of Year 1	$	$
Income allocation-Year 2	$	$
Depreciation allocation-Year 2	$	$
Basis at the end of Year 2	$	$

Are any losses suspended for either partner?
No/Yes

b. Does the allocation provided in the partnership agreement have an "economic effect"?
No/Yes , because (1) gains, income, loss, etc., allocations are/are not reflected in capital account balances, (2) liquidating distributions are in accordance with average/beginning/end capital account balances, and (3) deficit capital accounts/outstanding loan balances must be restored.

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MGAD65H3 Lecture Notes - Lecture 12: Tax Rate, Dividend Tax, Accrual

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