Partnerships
A partnership is an unincorporated organization formed by two or more persons. The partnership itself is not subjected to tax, as all income, deductions and credits pass through to the partners. This income is reported to each partner on a Schedule K-1 and to the IRS on Form 1065.


Pertinent data on Partnerships:
Liability: General Partner-Unlimited; Limited Partner-Limited
Nature of Owner's Income: Self-employment income (general partners only)

Federal Tax Filing Form Used for Partnership:
Annual Return of Income: Form 1065
Employment taxes: 941, (943 for farmers), 940, 8109-B

Federal Tax Filings Form Use for Individuals In A Partnership:
Income Tax: Form 1040, Schedule E
Self-employment tax: Form 1040, Schedule SE
Estimated tax: 1040-ES
Compensation reported: Schedule K-1


Advantages:
Fairly low cost to establish
Other partners to share responsibility
Limited liability for limited partners
100% of medical premiums deductible for partnership
Partners can receive a proportionate income share depending on their investment

Disadvantages:
Unlimited liability for general partners
Lack of continuation at death of partners
Self-employment tax (general partners)
Limited partners are subject to passive income/loss rules

Limited Liability Company

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