Partnership guaranteed payments will be taxable; should you review your partnership agreement?
July 1, 2015
As part of the tax increase this year’s Kansas Legislature passed to make up for the state’s $400 million budget deficit, partnership guaranteed payments will become taxable – but with an uncertain effective date. This action reverses the state’s 2012 tax cuts, in which these payments were removed from federal adjusted gross income (AGI) income to calculate Kansas taxable income.
Guaranteed payments are payments made to a partner regardless of the amount of partnership income; they are negotiated in the partnership agreement.
This latest action means guaranteed payments are no longer subtracted from federal AGI to calculate Kansas taxable income. The new Kansas law enacted by the legislature contains a 2013 effective date. The same law also states an effective date of July 1, 2015. The Kansas Department of Revenue (KDOR) has stated its intention to clarify the effective date to Jan. 1, 2015 – however, that predates the new law, and could be seen as exceeding the KDOR’s regulatory authority.
Regardless of the final effective date, partners who receive guaranteed payments and seek to minimize any new tax liability should contact their tax professional as soon as possible to discuss potential strategies. A change in the partnership agreement may be to the partner’s benefit.
To understand how these changes may affect your business and tax liabilities, please contact your AGH tax professional, or AGH senior vice president of tax services Shawn Sullivan using the information below.
Senior Vice President
Shawn serves as one of two primary leaders in the firm’s large tax group. He has extensive public and private experience in the fields of tax and accounting and works frequently with clients in the manufacturing, wholesale/retail distribution, real estate development and management, construction, and contractor industries. In addition to enhancing business performance to minimize tax consequences, he has experience in mergers and acquisitions and international tax and business structuring.
A certified public accountant, Shawn is a member of the American Institute of Certified Public Accountants, the Kansas Society of Certified Public Accountants (KSCPA) and chairs the KSCPA Committee on Taxation.
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NOTE: Any advice contained in this material is not intended or written to be tax advice, and cannot be relied upon as such, nor can it be used for the purpose of avoiding tax penalties that may be imposed by the IRS or states, or promoting, marketing or recommending to another party any transaction or matter addressed herein.