Partnerships
Ma1.
response to the classmate,
Amanda Cain,
Partnerships are considered flow-through entities meaning, each partner of the business is responsible to pay taxes on their share of the business’s
Basic tax filing requirements of a partnership is 1.) file an information return using Form 1065 annually with the IRS and 2.) each of the partners will be required to file an individual income tax return using Form 1040 in addition to Form 1065. The Form 1065 is used to disclose the business’s income/loss and provide a breakdown of how much each of the partners have earned from their share of profit or losses.
Guaranteed payments are part of a partner’s distributive share and are primarily considered payments received as compensation rather than allocations based on equity interest. Guaranteed payments are subject to self-employment taxes due to wages being paid for services rendered.
An example of how partnership tax rules effects businesses would be the additional personal taxes associated with certain types of partnerships such as LLP’s. Another Example would be Guaranteed payments because they are treated differently than distributive shares meaning additional taxes could be applied depending on the qualified arrangement set upon by the partners.
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