Award-winning financial advisor Christopher Fess works at Fess Financial in Frisco, Texas. A chartered financial consultant (ChFC) and tax professional, Christopher Fess helps clients, such as limited partners, in navigating complex tax laws.
Partnerships, unlike corporations, do not have a legal life of their own and are therefore considered pass-through entities for tax purposes. This means that partnerships do not pay taxes on their earnings as corporations do. Rather, these earnings are distributed to partners who then pay taxes on their individual shares or deduct their share of losses.
With regard to dealings with the IRS, a partnership should file a Schedule K-1 with the agency alongside a Form 1065. The former details each partner’s share of profits and losses and the latter helps the IRS know if the partners are reporting income correctly. Each partner then reports his or her share of profit or loss in his or her tax return (Form 1040). Because partners have no employer to withhold their income taxes, they should estimate how much money they will owe at year end and make payments every quarter. They should also pay self-employment taxes on their partnership profits including social security and Medicare.
Christopher Fess 