TAX NEWS - August 2009

Partnerships Tax FAQ - State of Georgia tax

Q. Where do I deduct separately stated expenses (Section 179, charitable contributions, investment expenses etc.) on the partnership Form 700?

A. Since these items may be subject to further limitations, they are not deducted in the calculation of Georgia net income of the partnership. The portion of these expenses that are attributable to Georgia, that have not been included in the partnership's Georgia net income and that have been allowed on the taxpayer's Federal tax return, can also be subtracted on the partner's Georgia tax return.


Q. How should guaranteed payments be treated on the partnership return?

A. The following example illustrates how they should be treated. There are two partners in the partnership. Partner one is a resident of Georgia and owns 25% of the partnership. Partner one receives a guaranteed payment of $10. Partner number two is a nonresident of Georgia and owns 75% of the partnership. Partner two receives a guaranteed payment of $40. The profit and loss sharing ratio is the same as the ownership percentage. The Georgia apportionment ratio on line 4, part 2, schedule 6, of Form 700 is 50%.




Ordinary income before the guaranteed payment                                     $150
Guaranteed payment                                                                             $ 50
Ordinary income placed on line 1, schedule 7, of Form 700                       $100
Guaranteed payment placed on line, 5, schedule 7, of Form 700                $ 50
Total income for Georgia purposes, line 12, schedule 7, of Form 700         $150
 
Partner one (resident) is required to report $35 on their Georgia return. The entire $10 guaranteed payment plus their share of the ordinary income of the partnership $25 ($100 ordinary income placed on line 1, schedule 7, of Form 700 multiplied by their ownership percentage of 25%). Partner two (nonresident) is required to report $57.5 on their Georgia tax return. The Georgia portion of the guaranteed payment $20 ($40 guaranteed payment multiplied by the Georgia ratio of 50%) plus their share of the Georgia portion of the ordinary income of the partnership $37.5 ($100 ordinary income placed on line 1, schedule 7, of Form 700 multiplied by their ownership percentage of 75% multiplied by the Georgia ratio of 50%).


Q. Does a partnership have to pay net worth tax?

A. The Partnership Return is an information return only and partnerships are not subject to the net worth tax.


Q. Does Georgia have its own K-1?

A. No.


Q. Who gets the benefit of tax credits earned by partnerships?

A. Usually tax benefits are passed through to the partners.