Under a partnership agreement, sarah is to receive 25% of the partnership's income, but not less than $12,000. the partnership's net income for this year was $32,000. what amount can the partnership deduct as a guaranteed payment, and what amount of income is sarah required to report on her individual tax return?

Given: -

Sarah's income = 25% of the partnership income but not less than $12,000.

Net income of partnership for the year = $32,000.

To find: -

1) Amount that can be deducted by partnership as guaranteed payment.

2) Income that Sarah is to report on her tax return.

Solution: -

Partnership income = $32,000

Sarah's share = 25% of 32000 = $8,000

But Sarah must receive $12,000 (Shortfall $12,000-$8,000=$4,000)

So, 1) $4,000 can be deducted by partnership as guaranteed payment.

2) Income that Sarah needs to report on her tax return = $12,000.