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Amit is a partner in Reynolds Partnership. This year, Amit's Schedule K-1 from Reynolds reflected $50,000 of ordinary income, $1,000 of interest income, and a cash distribution of $35,000. Amit's marginal tax rate is 39.6%.(a) Calculate the tax cost of Amit's partnership earning this year. (b) Calculate Amit's after-tax cash flow from his partnership activity this year.

Answer :

Answer:

a) $20,196

b) $14,804

Explanation:

As for the provided information, we have

a) Tax Calculation will be:

Ordinary Income = $50,000

Add: Interest = $1,000

Cash Distribution = Non taxable

Total taxable income = $51,000

Marginal tax rate = 39.6%

Tax amount = $51,000 [tex]\times[/tex] 39.6% = $20,196

b) Amit's After tax cash flow from partnership this year shall be:

Total cash received from partnership = $35,000

Less: Tax paid on such amount = $20,196 = $14,804

Net cash after tax from partnership = $14,804

Final Answer

a) $20,196

b) $14,804

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