Small Business Investing

Starting a Business

What is a partnership?

A partnership is a business structure between two or more persons who join to carry on a trade or business, contributing money, property, labor, and/or skill, and expect to share in the profits and losses of the business. According to the IRS, a partnership must file an annual information return to report the income, deductions, gains, losses, etc., from the operations of the business, but it does not pay income tax. Instead, it “passes through” any profits or losses to its partners. This means each partner includes his or her share of the partnership’s income or loss on his individual tax return for each tax year. Partners are not employees, and should not be issued an IRS Form W-2. The partnership must furnish copies of IRS Schedule K-1 (Form 1065) to the partners by a predetermined filing date. According to the IRS, the actual partnership itself is responsible for filing such documents as an income tax return, employment taxes for employees such as Social Security and Medicare, FUTA taxes, and for depositing employment taxes and any excise taxes due. If you are a partner in a partnership, you are responsible to file such items as income taxes, self-employment taxes (since you are paying yourself with the money earned from the partnership), and estimated taxes throughout the course of the tax year.


This is a web preview of the "The Handy Investing Answer Book" app. Many features only work on your mobile device. If you like what you see, we hope you will consider buying. Get the App