Tag partnership

When two people agree to form a business together, what would you guess they call it? Naturally, many people use the term “Partnership.” In some instances, Partnership is technically correct, like when two or more attorneys share an office and referrals, or two accountants do the same. However, today the term “Partnership” is misused by many, and it could have an impact on their business.

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The IRS defines a Partnership as “relationship existing between two or more persons who join to carry on a trade or business.” As such, the partnership does not pay taxes but enjoys pass-through taxation. Each partner shares in the profits and losses of the business. The partners are given a Schedule K-1 (Form 1065) for their taxes.

Every state has its own laws, but typically, there are no formal requirements to establish a partnership, such as filing a document with the state (as is typical for corporations and limited liability companies) or drafting an agreement between the partners.

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