When dealing with the complexities of a partnership, it is vital the books are kept accurate and tax planning is done multiple times throughout the year to ensure estimated tax payments are being made properly for each partner’s benefit. There will need to be distributions from the partnership to cover the partner’s income taxes which means an impact on cash flow. It is best to know exactly where your cash flow and your income tax positions are at all times.
Partnerships do not actually pay income tax but must file an income tax return. All income from the partnership flows through to the partners’ individual income tax returns and it flows through as self-employment income. This means the income is subject to an additional 15.3% self-employment tax rate!
Partnerships also have multiple sets of books – one for the partnership and one for each partner’s purposes. An item can have a completely different gain or loss position for partner purposes than it does for partnership purposes. Partnerships are one of the most difficult types of businesses to handle properly for tax purposes. Let us help you today!