Federal & State Income Taxes (Partnerships & S Corporations)

Due date: March 15‍, Extension due date: September 15

A partnership is, for all intents and purposes, a relationship between two or more persons who conduct business together and contribute money, property, labor, and skills to it. These selected partners are also jointly liable for any earnings or losses produced by their company.

As a result, partnerships do not have to pay federal income taxes. Instead, tax liabilities for any earnings or losses are distributed to all individual partners.

In turn, partners must provide partnership information to the IRS on their tax or information returns.

In general, there are two sorts of partnerships: formal and informal.

General partnership: In order to manage a business, at least two general partners must share rights and responsibilities.

Limited partnerships: This sort of partnership has at least one general partner who owns and operates a business and at least one limited partner who is merely an investor.

Certain forms of partnerships may be required by certain states to pay certain taxes. In California, for example, general partnerships are exempt from paying yearly taxes, but limited partnerships must pay an annual tax of $800.

Regardless of the type of partnership, the following tax forms must be filed with the IRS by March 15:

Form 1065: This form is used to record the overall income or loss of your partnership, as well as any applicable deductions, such as salaries, guaranteed payments to partners, rent, taxes, and repairs. Attached schedules will ask you about your partnership, any changes that occurred during the previous tax year, how much income was brought in, and how much money was spent during that same time period.

Schedule K-1: This form is used to report each partner's share of income, losses, deductions, credits, and other items throughout the tax year. This form is required for both general and limited partners to record their proportionate share of the partnership's income or loss on their federal income tax return.

However, you can request an automatic 6-month extension to file Form 1065 and deliver Schedule K-1 to your business partners.

S Corporations that distribute corporate income, losses, deductions, losses, and credits to shareholders for federal tax purposes must also submit income tax returns by March 15.

S corporations, like partnerships, do not have to pay corporate income taxes because any profits or losses are distributed to shareholders, who report them on their individual tax returns.