Guaranteed Payments To Partners

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DEFINITION of 'Guaranteed Payments To Partners'

Payments that are guaranteed to be made to a partner irrespective of whether the partnership makes a profit or not. Guaranteed payments to partners are made to ensure that partners are compensated for specific contributions they make to a partnership, whether in the form of goods or services. This eliminates the risk of their making personal contributions of time or property for which they are never paid if the partnership is not successful.

INVESTOPEDIA EXPLAINS 'Guaranteed Payments To Partners'

Guaranteed payments essentially function as a form of salary for partners. This income may be subject to self-employment tax, depending on the terms of payment. Guaranteed payments are considered first-priority distributions and will be paid out even if the partnership is losing money.

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