Partnership
Definition
A business structure where two or more individuals share ownership and operate a business together. Partnerships file an information return (Form 1065) but do not pay income tax at the entity level. Instead, each partner receives a Schedule K-1 reporting their share of income, deductions, and credits. General partners pay self-employment tax on their distributive share, while limited partners generally do not. Partnership agreements determine how profits and losses are allocated among partners.
Example
Two partners each own 50% of a business that earns $200,000. Each receives a K-1 showing $100,000 of income, which they report on their individual tax returns. Each general partner also owes self-employment tax on their share.
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