Partnerships

Partnerships are a common choice for businesses with two or more people, and for professional service groups. You might see a business with an LP for Limited Partnership or LLP for Limited Liability Partnership. A partnership will file a separate tax return on form 1065. The Partners will receive a K-1 with their pass-through portion. The profits and losses will be shown on the Partners individual tax return. Partners can be paid a salary known as guaranteed payments.

One item to know is that partners are taxed on their portion of the profits (distributive share) whether the money was actually paid out to the Partner or not. This is one item of consideration when deciding between a partnership or corporation. There are also partnership dissolution implications based on State and Federal rules. As outlined in the previous post, LLC’s can file as Partnerships for tax purposes.