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Silly question I think- my husband and I form a business partnership but last year I did most of the work. Can I claim a larger proportion of the income and deductions based on the proportion of work, or is it fixed at 50/50? I don’t want to permanently change the partnership structure as the work effort will likely return to ~50/50 in the next year or 2.
Thanks for your advice!
This can be a tricky one.
Varied partnership distributions are often the result of what is called “partners salaries”. They are not a true salary or tax deduction because a partner cannot legally be employed by the partnership but rather they are an adjustment to the profit distribution for that partner for that year.
From a partnership law perspective (not tax law) most state legislation prescribes an equal split of distribution of partnership profits between the partners. So in absence of a separate partnership agreement varying distributions from year to year can be a problem. The good news is the that you can knock up a fairly basic partnership agreement (or it can possibly be implied in conduct). Seek some legal confirmation on this.
So yes you can effectively do it from year to year but be mindful of documenting the agreement on some basis.
Mr Tax handles partners salaries reconciliations so we have a tax reporting solution if you need it.