Characteristics:

  • 2 or more Members
  • A contractual relationship arising out of an agreement among the partners; preferably in writing.
  • The written agreement should provide ownership, profit, and loss percentages for each partner.
  • Unlimited liability-each and every partner is liable jointly and severally for the obligations of the partnership firm.
  • Pass through entity- All of the profits and losses of the partnership “pass through” the business to the partners, who pay taxes on their share of the profits (or deduct their share of the losses) on their individual income tax returns.
  • Types:
    • Multi-Member LLC
    • Limited Liability Partnership
    • General Partnership

 

Form 1065:

  • Every partnership that engages in a trade or business or has gross income must file an informational return showing its income, deductions, and other required information.
  • The partnership return must show the names and addresses of each partner and each partner’s distributive share of taxable income.
  • The business can deduct legitimate business expenses from its business income such as start-up costs, operating expenses, travel costs, business-related meals and entertainment, and product and advertising costs.
  • The return must be signed by a general partner or member.
  • The return must be filed by April 15 following the close of the partnership’s tax year if its accounting period is the calendar year. A fiscal year partnership generally must file its return by the 15th day of the 4th month following the close of its fiscal year.
  • The partnership must provide a Schedule K-1 to the IRS and to each partner, which breaks down each partner’s share of the business’s profits and losses. (Each partner reports their profit and loss information on his or her individual tax return)
  • If you are actively involved in the business, in addition to income taxes, the IRS requires you to pay “self-employment” taxes on all partnership profits allocated to you. Self-employment taxes consist of contributions to the Social Security and Medicare programs.