C12-Chp-10-1A-Ptshp-Form-2012

C12-Chp-10-1A-Ptshp-Form-2012 - Chapter 10A. Partnership...

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Chapter 10A. Partnership Formation C11-Chp-10-1A-Ptshp-Form-2011 Edited January 4, 2011 This file covers pages 1 through 20 Howard Godfrey, Ph.D., CPA Professor of Accounting Copyright 2011
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The student should be able to: 1. Differentiate between general and limited partnerships. 2. Explain the tax results of a contribution of property or services in exchange for a partnership interest. 3. Determine the permitted tax years for a partnership.
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3 Highlights of Recent Tax Law Changes For organization expenditures incurred after 10-22-04, a partnership may deduct the first $5,000 of these expenditures in the tax year it begins business. The partnership must reduce the $5,000 by the amount by which cumulative organizational expenditures exceed $50,000 although the $5,000 cannot be reduced below zero. Any remaining organizational expenditures can be amortized over a 180-month period beginning in the month it begins business. Under the 2004 Jobs Act, for tax years beginning after 2004, a partnership must report each partner’s share of qualified production activities income on the partner’s Schedule K-l. The deduction applies at the partner level.
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4 Highlights of Recent Tax Law Changes Proposed regulations were issued in May 1996 to amend the Sec. 7701 (and related regulations) classification scheme for business entities. Check-the-box regulations permit: partnerships to be taxed as C or S corps. These regulations were finalized in December 1996 effective for tax year 1997.
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1. Differentiate general and limited partnerships.
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Definition of a Partnership For tax purposes, the term partnership includes a syndicate, group, pool, joint venture, or other unincorporated organization, which carries on a business or financial operation or venture. If two people (or business entities) work together to carry on any business or financial operation with the intention of making a profit and sharing that profit as co-owners, a partnership exists for federal income tax purposes. A partner is any individual, trust, estate, or corp. that is a member of a partnership. A. General and Limited Partnerships. Each state has laws governing the rights and restrictions of partnerships. They are usually patterned after the UPA or the Uniform Limited Partnership Act.
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7 Definition of a Partnership 1. General Partnership. Two or more partners join together and do not specifically provide that one or more of the partners are a limited partner. 2. Limited Partnership. There are two classes of partners. There must be one general partner who has the same rights and liabilities as a general partner in a general partnership. A limited partner is limited in liability only to the amount invested in the limited partnership plus any additional amount he has committed to contribute. He has no rights to actively manage the partnership.
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8 3. Limited Liability Companies (LLCs). Businesses may be taxed as a partnership while having limited liability protection for owners. State law provides the limited
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C12-Chp-10-1A-Ptshp-Form-2012 - Chapter 10A. Partnership...

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