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

Related Articles
  1. Taxes

    What's the Purpose of IRS Form 1065?

    Business partners need the information on this form to complete their own tax returns. Here are the details.
  2. Taxes

    How A Schedule K-1 Works

    Schedule K-1 is a U.S. tax document used to report income, losses and dividends.
  3. Taxes

    Partnership Tax Filing Deadline is Now March 15th

    The deadline is now a month earlier than last year, but you can still file for an extension.
  4. Small Business

    What is a Partnership?

    A partnership is an organization where two or more owners operate a business.
  5. Taxes

    Explaining Tax Returns

    A tax return is the form or forms used to file income taxes with the IRS.
  6. Small Business

    MLPs and Limited Partnerships: How They Differ

    Limited partnerships and master limited partnerships have one difference that makes all the difference.
  7. Insights

    Limited Liability Partnership (LLP): The Basics

    LLPs are a flexible legal and tax entity that allows partners to benefit from economies of scale by working together while also reducing their liability for the actions of other partners.
  8. Small Business

    Which Type of Organization Is Best For Your Business?

    Learn the differences between the types of business organizations so you can determine how to best structure your business for tax and liability limitations.
  9. Small Business

    4 Business Partnership Mistakes To Avoid

    When two or more people get together to run a business, the odds of conflict and financial risk increase without the proper controls in place.
  10. Managing Wealth

    How & Where to File Form 1040 (And Which Version)

    All taxpayers need to know three things when filing a 1040: which form to use, how to file and where to file. After reading this, you'll know all three.
Frequently Asked Questions
  1. I'm about to retire. If I pay off my mortgage with after-tax money I have saved, I can save 6.5%. Should I do this?

    Only you and your financial advisor, family, accountant, etc. can answer the "should I?" question because there are many ...
  2. My wife and I both converted our Traditional IRAs to Roth IRAs over a decade ago and have invested the maximum allowed each year since. We're buying our first home soon. Do we both qualify for one-time, tax-free, $10,000 distributions?

    You and your spouse each qualify for a penalty-free distribution of up to $10,000 for the purchase, acquisition or construction ...
  3. Is a Thrift Savings Plan (TSP) a qualified retirement plan?

    Take advantage of the government's retirement plan for employees with the Thrift Savings Plan. As with a 401(k), contributions ...
  4. Who manages the assets in a Roth 401(k) account?

    Learn how to personally manage the assets in your Roth 401(k) plan and determine the best options available to help meet ...
Trading Center