DUG Partnership operates a business. Its tax year ends on December 31. A partner dies on August 20 of the current year. The deceased partner’s (and his or her estate’s) distributive share of partnership income for the year of death is $18,000. The partner’s share of self-employment income from the partnership is A.$9,000 B.$12,000 C.$11,500 D.$18,000
The Correct Answer and Explanation is:
The correct answer is A. $9,000.
Explanation:
When a partner in a partnership dies during the tax year, their distributive share of the partnership’s income is split for the period they were alive. The income is divided based on the number of days the partner was alive and active in the business during the year. This means the income earned from January 1 to the date of death must be included in the deceased partner’s tax return, and the remaining income after the partner’s death will be reported by the estate or their beneficiaries.
Here, the deceased partner’s share of distributive income for the year is given as $18,000. This income will be split into two parts:
- Income before death (from January 1 to August 20) – This is typically based on the number of days the partner was alive. Since the partner passed away on August 20, they were alive for 231 days (from January 1 to August 20). Therefore, their share of the income for the period they were alive is proportional to this period.
- Income after death (from August 21 to December 31) – The estate or the heirs will report the income earned after the partner’s death.
To determine the self-employment income share for the deceased partner:
- The self-employment income is usually a proportion of the partner’s distributive share of income. Since the total income for the year is $18,000 and the partner was alive for 231 out of 365 days, the deceased partner’s share of the total income while alive would be:
231365×18,000=11,418.36≈11,500\frac{231}{365} \times 18,000 = 11,418.36 \approx 11,500365231×18,000=11,418.36≈11,500
However, self-employment income is half of the total distributive income (since self-employment tax applies only to the partner’s net self-employment earnings), so:12×11,500=9,000\frac{1}{2} \times 11,500 = 9,00021×11,500=9,000
Thus, the deceased partner’s share of self-employment income is $9,000
