Guaranteed payments to partners

Guaranteed payments to partners are made to the partners in a partnership, even if the partnership has not earned a profit. A partnership grants guaranteed payments when its members consider the recipient to be unusually valuable, or to compensate him for contributions made to the partnership. These payments are classified as wages paid to the receiving partners, and so are deductible expenses of the partnership. The receiving partner reports these payments as ordinary income on his or her tax return.

If a partnership is liquidating, guaranteed payments are issued prior to any liquidating distributions made to the partners.