In the current year, the DOE LLC received revenues of $200,000 and paid the following amounts: $50,000 of business expenses (rent, utilities, wages, depreciation, etc.), a $40,000 guaranteed payment (for services) to 50% member Dave, $10,000 to member Ethan for consulting services, and $10,000 as a distribution to member Olivia. In addition, the LLC earned $2,000 of tax-exempt interest income during the year. Dave is the managing member of the LLC. Daves basis in his LLC interest was $50,000 at the beginning of the year, and includes a $12,000 share of LLC liabilities. At the end of the year, his share of the LLCs liabilities was $20,000.

a. How much income must Dave report for the tax year and what is the character of the income?

Particulars Amount

Revenue $200,000

Rent and utilities $50,000

Guarantee payment to Dave $40,000

Consulting expenses to Ethan $10,000

Ordinary Income $100,000

[$200,000-($50,000+$40,000+$10,000)]

b. What is Daves basis in his LLC interest at the end of the tax year?

Beginning Basis $50,000

Increase in share of the LLC Liabilities $8,000 [$10,000-$2,000]

Share of Ordinary Income $50,000

Share of tax exempt interest income $1,000 [10,000*.1]

Ending Basis $109,000

[$50,000+$8,000+$50,000+$1,000]

c. On what income will Daves self-employment tax be calculated?

$109,000 on Daves Self-employment tax will be calculated

d. What is the maximum amount Dave might be able to deduct for this business (QBI)?