Partnership Tax Returns
The Partnership legal entity is one of the oldest business structure options in existence. The Partnership entity is a creation of federal tax regulations as detailed in Chapter 1, Subchapter K of the US Internal Revenue Code.
For legal purposes a Partnership is treated like as a separate legal entity under the laws in the state that it was created. Partnerships can enter into contracts or be sued but are treated as a pass-through entity for tax purposes.
Some pitfalls to having a Partnership form of business:
- Partnership are treated as pass through entities which can result in tax liabilities for the partners. If not managed properly this can lead to a tax bill even though cash never flowed to the partners.
- There is little legal liability protection in a traditional partnership structure and partners can be held liable for other partners actions.
- While there is little restrictions on who can be a partner, there are different accounting and tax standard applicable depending on whether a partner is actively involved in day-to-day operation and whether the partner is an individual or a corporation.
- Certain changes in partnership interest or assets can legally dissolve partnership.
- By law a partner in a partnership cannot be paid as an employee.
- Partnership interests are by nature illiquid.
But there can be some advantages to having Partnership form of business:
- Partnerships avoid double taxation due to the pass-through treatment of its income.
- Through proper management, partnership capital accounts can be uses recapture the original investments in the company.
- Partnerships are very easy to form.
Zagotti & Burdette understands the Partnership business structure and the tax options available to those who chose this form of business. We have many years experience guiding clients through the range of tax options available based on their individual circumstances and business plans.
We don’t just prepare your Partnership tax return, we look at the return holistically to provide tailored solutions just for you and your business.
Call (832) 800-3347 today to schedule your free appointment today.