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. Investing

    MLPs and Limited Partnerships: How They Differ

    Limited partnerships and master limited partnerships have one difference that makes all the difference.
  2. Investing

    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.
  3. ETFs & Mutual Funds

    How Private Equity and Hedge Funds are Taxed

    Private equity and hedge funds offer an appealing tax structure for those who can afford to invest in them. Here's why.
  4. Personal Finance

    The Ultimate Tax-Time Checklist

    Find out what information you need to pull together before filling out your return.
  5. Retirement

    Employers: Don't Forget IRS Form 941

    Your obligations as an employer include various employment taxes. Use this form to report them.
  6. Personal Finance

    3 Federal Income Tax Facts You Didn't Know

    Learn about three federal income tax facts that most Americans may not know from one of the most trusted financial resources on the Web.
  7. Personal Finance

    20 Tax Changes You Need To Know About

    Don't miss out on the tax changes. Here's a list that you need to know about.
  8. Personal Finance

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  9. Personal Finance

    Top Tax Issues For High-Net-Worth Individuals

    Wealth brings benefits, but from a tax perspective it creates special challenges. Here are some tax issues to pay attention to.
  10. Personal Finance

    Understanding Income Tax

    Income tax is a levy many governments place on revenue of entities within their jurisdiction.
Trading Center