In the current year, the DOE LLC received revenues of $200,000 and paid the foll
ID: 2590260 • Letter: I
Question
In the current year, the DOE LLC received revenues of $200,000 and paid the following amounts: $50,000in rent and utilities, a $40,000 guaranteed payment to 50% member Dave, $10,000 to member Ethan forconsulting services, and $10,000 as a distribution to member Olivia. In addition, the LLC earned $2,000 of tax-exempt interest income during the year. Dave is the managing member of the LLC. Dave’s basis in his LLCinterest was $50,000 at the beginning of the year, and includes a $12,000 share of LLC liabilities. At the end ofthe year, his share of the LLC’s liabilities was $20,000.
a.How much income must Dave report for the tax year and what is the character of the income?
b.What is Dave’s basis in his LLC interest at the end of the tax year?
c.On what income will Dave’s self-employment tax be caluclated
Explanation / Answer
a). Calculation for Ordinary income :-
b). Calculation for LLC Interest :-
Dave's Guaranteed payment does not affect his basis.
c). Dave's Self employment tax Calculated on $109000.
Particulars Amount ($) Revenues 200000 Less : Rent and Utilities (50000) Less : Guaranteed Payment to Dave (40000) Less : Consulting Expenses to Ethan (10000) Ordinary Income 100000