like the S Corp in that the Tax Return is an informational return.
The form K-1 reports the partnership's income or loss and is given to
each partner. Partners pay both self-employment and income
taxes on their personal returns, which usually means they pay estimated
quarterly taxes. Some expenses, like health insurance, are not
deductible to the partnership but are passed through on the K-1 to the
partners to be deducted on their personal returns.
Partners are not
employees of their business. Their "pay" is considered a draw against earnings. Partners are considered "general partners" and are
personally liable for any torts or debts of the business, as well as
actions of the other partners. To become a partner in a
partnership, the person makes a financial investment in the business
which then determines the partner's ownership percentage.
The partnership should have a
partnership agreement, buy/sell agreements and succession documents on
file at time of forming the partnership. Succession agreements are
especially necessary in a two-person partnership because the death of
one partner effectively terminates the partnership.
Oregon assesses a minimum $150.00 tax on all Partnerships. It
is due when the return is filed or when the extension is filed,
whichever is done first. Other states may have different rules
regarding the taxation of partnership income.