Fundamentals of Taxation
Quiz 14 :
Partnership is a form of an entity used by a taxpayer for the tax purposes. In a partnership two or more partners come together to conduct business jointly. Generally all partners in a partnership have an unlimited liability and they are jointly liable for all their actions. All contributions by partners (except for contribution of services) to a partnership and all distributions by a partnership to its partners are tax free exchange.A partnership is generally formed informally. When two or more partners come together to conduct business jointly by making contributions, a partnership is formed. The contributions can be in the form of cash, property or services. A partnership is a pass through entity thus its income and expenses are directly taxable and deductible in the hands of its partners. Thus no gain or loss is recognized by a partnership.
Partnership entity: Partnership means conduct of business by two or more persons together to achieve common goals. Generally, partners contribute capital in the form of cash, assets or services to the firm to become a partner. Partners share the profits and losses of the partnership on a predefined basis such as profit sharing ratio, etc.Type of partnerships: There are four types of entities considered as partnership entities for federal income tax purposes- 1. General partnership 2. Limited partnerships 3. Limited liability partnerships 4. limited liability companies All these types of partnerships have to file information return in form 1065.