# Ordinary Income in Partnerships and S Corps. Studying for my CPA and lost!

SoccerBoss
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Question description

A and B are accountants, and share profits 50/50 in the AB partnership. Their attorney has advised them to incorporate for personal liability reasons. Their operations for the year are as follows:

Accounting revenues \$ 900,000

Operating expenses \$ 215,000

Interest income \$  18,000

Charitable contributions \$  20,000

Life insurance premiums for X and Y \$  12,000

A and B compensation (1/2 each) \$ 300,000

Cash withdrawals (1/2 each)                          \$          100,000

The charitable contributions, life insurance premiums and compensation expenses are not included in the operating expenses.  For social security taxes, assume a maximum self employment tax base of \$117,000, and a total payroll tax rate of 7.65% (employer or employee), and 12.4% (self-employment tax). Do not consider Medicare tax, or Federal and State income and unemployment taxes.

A.      Calculate AB’s ordinary net income if taxed as a partnership

B.        Calculate AB’s  ordinary income if taxed as an S corporation

C.        Calculate A’s ordinary income if XY is taxed as  an S corporation

D.        Based on the above analysis, briefly note any planning ideas or additional questions you would ask.

(Top Tutor) Daniel C.
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School: New York University
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