quick question re: partnerships and wages

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paddi22

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Hi,

In a business partnership where a married couple run a business as well, if for example the company makes 90,000 and partner A wants to take 30,000, Partner B take 30,000 and they want to leave 30,000 to invest in the business. What way does it work for them to take the money.

Is it scenario X or Y?

Scenario X where drawing are deducted as expenses
Money earned 90,000
Drawings for A - 30,000 >>A then goes and pays tax on this himself
Drawings for B - 30,000 >>B then goes and pays tax on this herself
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30,000 left to invest and tax is paid on this


or is it scenario Y
Money earned 90,0000 >> tax paid on all this amount... A and B take their money and the rest is left in bank account
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Sorry if this isn't clear.. i will be talking to an accountant about it, but I wanted to get some idea before I met him.
 
It's scenario Y.

The partnership agreement can state how the profits are to be divided, but all the profits will be taxed in the year they are earned, regardless of whether they are actually withdrawn by the partners or not.
 
brilliant. thanks for that! Just wanted to get it clear in my head

Just to clarify.. if 30,000 is left in the account to grow the business.. and then say 100,000 is earned the next year.. is the tax paid on the 130,000 total..i.e is the 30,000 taxed twice?
 
The tax on the 90,000 is assessed on the two partners in proportion to their share in the profits. Assume its 50:50 and each withdraw 30,000, then 15,000 would be left in each of their capital accounts but they would each be assessed on 45,000.
 
So when the partnership is formed both partners in the partnership agreement agree their share of the profit as is 50:50,As in the above post if there is 90,000 profit and both agree to draw 30,000 and you say both are assessed on 45,000 each.So both partners pay tax on 45,000 each even if they dont take it as a drawing and plan to leave 15,000 each in the company? How are you assessed on the 45,000 - what type of tax?
 
jimmyd said:
So when the partnership is formed both partners in the partnership agreement agree their share of the profit as is 50:50,As in the above post if there is 90,000 profit and both agree to draw 30,000 and you say both are assessed on 45,000 each.So both partners pay tax on 45,000 each even if they dont take it as a drawing and plan to leave 15,000 each in the company? How are you assessed on the 45,000 - what type of tax?
Click to expand...

Through the income tax system, each partner is treated similar to a sole trader but your each only taxed on your share of the profits.
 
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