Guaranteed Payments to Partners

A guaranteed payment is a payment made by a partnership to a partner that is not based on the partner's share of the partnership's income or loss. Guaranteed payments are typically made to partners who provide services to the partnership or who own property that is used by the partnership.

Guaranteed payments are treated as ordinary income to the partner who receives them. The partnership can deduct guaranteed payments as a business expense.

There are a few important things to keep in mind when making guaranteed payments to partners. First, guaranteed payments must be reasonable in amount. Second, guaranteed payments must be made in cash. Third, guaranteed payments must be made on a regular basis.

If a guaranteed payment is not reasonable in amount, the IRS may reclassify the payment as a distribution of partnership income. This can have significant tax consequences for the partner who receives the payment.

If a guaranteed payment is not made in cash, the IRS may treat the payment as a loan from the partnership to the partner. This can also have significant tax consequences for the partner who receives the payment.

If a guaranteed payment is not made on a regular basis, the IRS may treat the payment as a distribution of partnership income. This can also have significant tax consequences for the partner who receives the payment.

Guaranteed payments can be a useful tool for partnerships to compensate partners for their services or for the use of their property. However, it is important to understand the tax implications of guaranteed payments before making them.