Partnership FAQ

Questions:

• What is a partnership and how do I create one?
• Are there special rules for running partnerships?
• Is a written partnership agreement required for every partnership?
• How are partnerships taxed?
• Are owners of a partnership personally liable for business debts?
• What happens if one partner wants to leave the partnership?
• What are the differences between a partnership and a limited liability company?
• What is the difference between a general partnership and a limited partnership?

Answer:

How are partnerships taxed?

A partnership is not considered separate from its partners for tax purposes. Generally, this means the partnership itself does not pay any income taxes; instead, partnership income "passes through" the business to each partner, who then reports his or her share of business profits or losses on an individual federal tax return. Each partner will need to estimate the taxes he or she will owe at the end of the year and make four quarterly estimated tax payments to the IRS. For more on reporting and paying partnership taxes, see How Partnerships Are Taxed.