Partnership tax

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Page written by Ashlyn Brooks. Last reviewed on July 29, 2024. Next review due October 1, 2025.

Unlike corporations, LLCs, and sole proprietorships, partnerships have unique tax obligations and filing requirements that partners must navigate carefully. This guide will cover what taxes a partnership needs to pay, how partnership income is taxed, the steps to file taxes for a partnership, and important deadlines to keep in mind.

Plus, we’ll explain how Swoop can assist you in optimizing your financial strategies, ensuring your business remains in the black and financially healthy.

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Who pays partnership tax?

In a partnership, the partnership itself does not pay federal income tax. Instead, the profits and losses of the partnership are passed through to the individual partners, who then report their share on their personal tax returns.

Each partner is responsible for paying taxes on their share of the partnership’s income, which is reported to them on a Schedule K-1 (Form 1065). This ensures that the income is taxed at the individual level rather than at the entity level, aligning with the pass-through nature of partnerships.

What tax does a partnership need to pay?

Partnerships do not pay income tax at the entity level. Instead, they operate as pass-through entities, meaning the profits and losses are passed through to the individual partners. Each partner then reports their share of the partnership’s income or loss on their personal tax return.

However, partnerships may be subject to other types of taxes, such as:

Self-employment taxes: Partners must pay self-employment taxes (similar to small business taxes) on their share of the partnership’s earnings, which covers Social Security and Medicare taxes. Generally, this is 15.3%.
State and local taxes: Depending on the state, partnerships may have to file state partnership returns and pay additional state and local taxes.
Employment taxes: If the partnership has employees, it must withhold and pay employment taxes such as Social Security, Medicare, and federal and state unemployment taxes.

How is partnership income taxed?

Partnership income is taxed differently from corporate income. Here’s how it works:

Pass-Through Taxation: The partnership itself does not pay federal income taxes. Instead, the income “passes through” to the partners, who report their share on their personal tax returns.
Schedule K-1: Each partner receives a Schedule K-1 (Form 1065), which outlines their share of the partnership’s income, deductions, credits, and other items. This form is used to complete their individual tax returns.
Tax Rates: Partners are taxed at their individual income tax rates on their share of the partnership income. This can range from 10% to 37% for federal income tax, depending on the partner’s total taxable income.

How to file taxes for a partnership

Filing taxes for a partnership involves several steps:

Gather financial records: Collect all necessary financial statements, including income statements, balance sheets, and cash flow statements.
Complete form 1065: Partnerships must file an annual information return using Form 1065, U.S. Return of Partnership Income. This form reports the partnership’s income, deductions, gains, losses, and other financial activities.
Prepare schedule K-1: Each partner’s share of the income, deductions, and credits is reported on Schedule K-1, which must be prepared and distributed to each partner.
File with the IRS: Submit Form 1065 and the accompanying Schedules K-1 to the IRS by the specified deadline.
State filings: Depending on the state, you may also need to file a state partnership return.

When is the deadline for filing partnership taxes?

The deadline for filing partnership taxes is typically March 15th for calendar-year partnerships. If the partnership operates on a fiscal year, the deadline is the 15th day of the third month after the end of the partnership’s fiscal year. Partnerships can request an automatic six-month extension by filing Form 7004 before the original deadline.

How Swoop can help

Corporate taxes, like all taxes, are a significant part of operating a business, and navigating them can be complex and time-consuming. While Swoop does not handle taxes, we provide valuable information and support to help you optimize your financial strategies.

Explore our available funding options on the Swoop platform to discover tailored funding solutions that can enhance your business growth and overall financial health.

Written by

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in business and consumer taxes, retirement, and financial services to name a few. She has been published in USA Today, Kiplinger and Investopedia.

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