how to taxes work in a partnership?

Question

in a partnership business, how are taxes figured, should i assume that you are double taxed were the business gets taxed for its income and then the partner gets taxed for his also, can someone give me a clear explanation of how this would work?

Answer 1

If the corporate structure is a partnership, then the income from the corporation flows through directly to the partners and the partners then pay taxes on the corporate income. The corporation doesn't pay taxes on it.

However, if the corporate structure is a corporation (it has been incorporated under the laws of the state), the income is taxed at the corporate level and then if the corporation declares dividends, the shareholders are taxed on their income. This is the type of "double taxationt" that I think that you were thinking of.

Answer 2

In a partnership, sub-S Corporation, or a L.L.C., the income flows through to the owners. The business pays no income tax.

The CPA, or accountant, will determine the profits for the year. Then each owner will receive a K-1, tax form with their percentage of the profits shown.

Each individual will then include the amount on the K-1 on their 1040 tax return and pay tax on that together with any other income.

Answer 3

In a general partnership, the business files its forms, and gives each partner a form declaring their percentage of the profit (or loss). That percentage is included as income (or loss) on their personal income tax report.

Answer 4

When you set up your business you have to figure out who owns what part of the business. For example, say you are the 40 percent owner, then your are responsible for 40 percent of the taxable income, which you report on your personal taxes. There is a lot more to it and I would check out All About Taxes for more information.