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How Is A Partnership Formed?

In general, any two or more people (including husband and wife) who go into a trade or business together have created a partnership, and are required to file an annual partnership return (Form 1065). State rules vary, with some requiring that partnerships register with the state and file an annual return as well, and possibly pay annual fees for the right to do business in that state.

A partnership is a not a taxable entity of itself, but a conduit through which partners report the income and deductions of the business. They each receive a Schedule K-1(which is like an expanded 1099), which they use to report their share of partnership income (and separately-stated pass-through items) on their personal income tax returns.

A partnership return is not a very "user friendly" form, and those without a good knowledge of the applicable laws would be wise to seek out professional preparation assistance.

Failure to file a partnership return can result in a penalty of $50 per partner each month it is late, up to a maximum of five months. For example, a partnership with two partners that files more than five months late would owe $500, even if there is no income from the business!

Return to Partnership Reports

 

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Disclaimer
We do not offer legal advice. All information provided on this website is for informational purposes only and is not a substitute for proper legal advice. If you have legal questions, we recommend that you seek the advice of legal professionals.

Tax Disclaimer: To ensure compliance with IRS Rules, any U.S. federal tax advice provided in this communication is not intended or written to be used, and it cannot be used by the recipient or any other taxpayer (i) for the purpose of avoiding tax penalties that may be imposed on the recipient or any other taxpayer under the Internal Revenue Code, or (ii) in promoting, marketing or recommending to another party a partnership or other entity, investment plan, arrangement or other transaction addressed herein.

Copyright 2017 Wink Tax Services / Wink Inc.
Last modified: January 30, 2017