Many partnerships are formed as a way to share the profits and losses of running a business with other people.

The problem is, when it comes time to file taxes for your partnership, you might not be sure how to do so because there are many different kinds of partnerships and tax laws vary depending on where you live in the world.

In this article, we will go over how income tax is handled for partnerships in the United States and give some tips about what steps should be taken before filing your taxes.

What is a Business Partnership?

A business partnership is an agreement between two or more people to form a business.

Partnerships are usually independent of one another, meaning that each partner can run their own affairs without having oversight from other partners in the company.

What Information Do I Need for My Partnership Income Tax?

The first thing you will need before filing taxes as a partnership is your social security number (or tax identification number) and your Federal Employer Identification Number (EIN).

Without these numbers, it might be difficult to file income taxes on time because they act like personal identifiers.

If you do not give the correct information when filling out forms or applying for certain services related to taxation, then there could potentially be problems down the line with receiving credit.

When are Partnership Tax Returns Due?

Partnership tax returns are due on April 15th of the following year.

This means that if you form your partnership in 2021, then you will not need to file taxes until 2022 unless it is a fiscal-year company (in which case they would have different rules for filing).

What Taxes Are Paid by Partnerships?

Businesses and companies must pay federal income tax as well as state and local income tax. Depending on where your business is located, there might also be additional taxes like property or sales tax too.

You’ll Need to Fill Out Form 1065, U.S. Return of Partnership Income

The Internal Revenue Service (IRS) requires that every partnership fill out Form 8832 to determine how business income and losses will be allocated.

This form is filed alongside a federal tax return, such as the standard form, which you’ll file with either your personal or an S-Corporation status.

You can also choose another option if it makes more sense for your situation.

For example, some people may prefer filing under Sole Proprietorship Status if they don’t want to go through all of the trouble of setting up formal paperwork like the Articles of Organization in their state government office.

Each choice has pros and cons associated with it so speak with someone who knows more about this topic than you do before making any decisions.

Hire a CPA to Handle Your Taxes

In order to avoid any costly mistakes with your taxes, it is highly recommended that you hire a tax preparation outsourcing professional who specializes in tax preparation.

Many small business owners don’t want to spend the extra money on hiring someone else.

However, they end up paying half as much after filing their own returns and waiting for an IRS audit or other common problems associated with not having assistance from a qualified individual.

Prepare the Schedule K-1 Form

The Schedule K-Form is used to report the share of partnership income, losses, and other relevant information that needs to be taken into account.

This form requires you to use your capital accounts in order to determine how much profit or loss each partner has earned by investing their own money into the company.

While this might seem like a lot of work, using accounting software makes it easier than ever before.

This is because everything can be done online in minutes rather than spending hours trying to put together all of the necessary pieces for doing taxes on your own.

Don’t Forget About State Taxes (If You’re Filing With Form 8832)

In some cases, you might find that your business is considered a partnership for tax purposes but not at the federal level.

This means it can either be taxed as regular income or through another method depending on where you live in the United States and what type of business entity is being formed.

Since these laws vary from state to state, we recommend consulting with a professional who has more knowledge about this area than most people do.

This is so they can provide accurate information regarding how taxes are going to be handled if filing Form 8832 does not result in meeting all legal requirements.

Be Prepared For an IRS Audit (If Filing With Other Types of Status)

If you are filing your taxes with a different status other than a partnership, there is always the chance that an IRS audit might occur.

These audits can be time-consuming and expensive so it’s best to try and avoid them whenever possible.

The easiest way to do this is by making sure all of your tax forms are filled out correctly before submitting them for review in case someone tries nitpicking over small mistakes made on individual pieces of paperwork throughout the year.

File Your Personal Tax Return

Since most people who own a business also have another job, it can sometimes be difficult to keep track of everything going on in your life.

Once the federal tax return is done being filled out with information from all sources that you receive income from, there’s no reason why this shouldn’t be included as well if doing so does not violate any legal restrictions currently in place for filing both at once.

You’ll want to make sure this is prepared correctly before submitting it since mistakes could cost you money when trying to get certain deductions or credits taken care of later down the road.

You Must Also Pay a Self-Employed Tax

If you are required to pay self-employment taxes, make sure they are done on time each year without getting behind.

Otherwise, a penalty of up to 50% can be charged for not fulfilling this responsibility unless a reasonable cause is given as the reason why submitting these payments was delayed or did not happen at all.

You’ll also have one extra month added to the end of your tax return filing deadline if an extension has been granted.

This is so it’s best to avoid any chances of needing additional extensions in the future by taking care of business correctly from day one.

Ready to File Your Partnership Taxes?

As you can see, it’s not too difficult to file partnership taxes. To learn more about this subject, continue reading this blog for more helpful articles.

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