A partnership is a specific business entity created by two or more individuals. Each partner invests or contributes some asset such as money, property or a skill and, in return, agrees to share in the profits or losses of the business. A partnership does not pay income taxes as a business entity. Rather, each individual partner is considered to be self-employed and must pay self-employment taxes on any income gained from the partnership
The specifics of partnership tax:
- Each partner is taxed on their share of the profits or losses of the business and must file a personal tax return to report these amounts.
- The partnership must file an information return on Form 1065 to report any gains, losses, income credits or deductions from the operation of the partnership.
- The partnership must file a K-1 for each partner.
Outside of these differences, partnership taxes are much like those of any other business entity. If the partnership has employees, employment taxes must be paid. These include federal and state withholding taxes, workers’ compensation taxes, Social Security and Medicare taxes and unemployment taxes. In addition, a partnership is responsible for paying sales and excise taxes just like any other business entity.