PARTNERSHIP TAX STRATEGY FOR SMALL BUSINESS
Beware IRS Dangers
Your Partnership Tax Strategy Is One Of The
Most Important Things
You Do
Partnership Passes Through To Partners
A Partnership is like a sole proprietorship except that there are two or more owners. Ordinarily, a partnership does not pay taxes as a separate entity, although it does file an annual tax form (Form 1065). Instead, partnership income and losses are passed through to the individual partners on a Schedule K-1(Form 1065)and reported on the partners’ individual tax returns. Partners must file IRS Schedule E with their returns, showing their partnership income and deductions.
Election To File IRS Form 2553
Should the partners choose to do so, the partnership may elect to file IRS Form 2553, (Election by a Small Business Corporation). The partnership may then elect to be taxed as either a regular C- corporation or S-corporation.
Like sole proprietors, partners are neither employees or independent contractors of the partnership; instead, self-employed business owners. The partnership does not pay payroll taxes on the partners’ income or withhold income tax. Partners pay income taxes and self-employment taxes individually on their partnership income.
Partnership Tax Strategy