Should a partner take guaranteed payment or taxable wages from partnership?

Deciding whether to take guaranteed payments or taxable wages from a partnership depends on several factors, including tax implications, benefits, and the structure of the partnership. Here’s a breakdown to help you understand the differences: ### Guaranteed Payments: 1. **Definition**: Guaranteed payments are payments made to partners for services or use of capital, regardless of the partnership's profitability. 2. **Tax Treatment**: These payments are generally considered ordinary income and are subject to self-employment tax. They are reported on the partner's Schedule K-1 and then on their personal tax return. 3. **Benefits**: Guaranteed payments can provide a steady income stream and are deductible by the partnership, reducing its taxable income. ### Taxable Wages: 1. **Definition**: Taxable wages are salaries paid to employees. Partners typically do not receive wages because they are considered self-employed. 2. **Tax Treatment**: Wages are subject to payroll taxes (Social Security and Medicare) and federal and state income tax withholding. They are reported on a W-2 form. 3. **Benefits**: Receiving wages can simplify tax withholding and may provide eligibility for certain employee benefits like retirement plans and health insurance. ### Key Considerations: 1. **Self-Employment Tax**: Guaranteed payments are subject to self-employment tax, which can be higher than payroll taxes on wages. 2. **Employee Benefits**: Wages might make it easier to qualify for certain benefits, but partners typically do not receive wages

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