Partnerships
At Mraz Tax Solutions, we understand that many business owners choose to form a partnership structure to leverage shared contributions, flexible profit/loss allocations and pass-through tax treatment. This page provides a comprehensive explanation of partnership formation, taxation under U.S. federal law, key decision points, and how our firm can assist you with structuring, compliance and return preparation.
*We provide a free initial consultation with a licensed tax advisor to determine your tax needs.
How Mraz Tax Solutions Can Help Your Partnership
Because partnerships often involve complex allocations, basis tracking and compliance obligations, our firm offers tailored services to help business owners and partners optimise their tax structure.
Partnership formation planning
We will work with you to structure the partnership agreement, capital contributions, allocations of profits/losses, partner compensation and cash flow planning.
Preparation of partnership tax returns
We prepare Form 1065, associated Schedules K-1 and any required supplemental Schedules K-2/K-3 (for international items).
Partner basis and distribution tracking
We help ensure that each partner's basis is properly maintained, and assist you with the tax impact of partner distributions, contributions and changes in interests.
Multistate and international considerations
If the partnership has operations in multiple states or partners who are foreign persons, we can assist with apportionment, withholding under IRC §1446, and state filings.
Partner level tax planning
For each partner we coordinate the partnership's tax items and integrate them into the partner's individual or other entity filings, optimizing tax outcomes and planning for cash flow and tax liabilities.
Book a consultation
If you are interested in learning more about our services, schedule an appointment with one of our tax experts. Book a one-on-one phone call and learn more about how we can help you with your tax needs.
What is a Partnership?
A partnership under U.S. tax law is an entity in which two or more persons carry on a trade or business together, sharing profits and losses. See IRS Publication 541 (Rev. December 2024) and the corresponding instructions.
Some key features:
- A partnership does not itself pay federal income tax on its earnings. Instead, it files an information return and “passes through” the profits or losses to its partners.
- Each partner reports their share of the partnership's income, deductions, credits and other tax items on their individual (or entity) income tax return.
- The tax rules governing partnerships are contained generally in Subchapter K of the Internal Revenue Code and the related Treasury Regulations.
Formation & Classification
When you set up a partnership (or convert an existing business to a partnership), you need to evaluate state law formation requirements as well as federal tax classification issues.
- Under federal tax classification rules, if an entity has two or more members and qualifies, it may be treated as a partnership by default unless it elects otherwise (for example, as a corporation).
- For example, a domestic LLC with two or more members is classified as a partnership for federal income tax purposes unless it files Form 8832 (Entity Classification Election) and elects to be treated as a corporation.
Contact us today to discuss your LLC strategy and begin taking advantage of professional tax guidance you can trust.
Frequently Asked Questions
If you are considering forming a partnership, converting an existing business entity, or you are already operating a partnership and would like to optimise your tax structure, we invite you to schedule a consultation with us. We will review your business goals, ownership structure, capital contribution plan and tax filings and provide you with a clear, professional recommendation.
Does the partnership pay the income tax?
No. A partnership does not pay federal income tax itself. It files an information return (Form 1065) and the partners report and pay tax on their respective shares of the partnership's items.
If I receive a Schedule K-1 from a partnership, do I pay tax even if I didn't receive any cash distribution?
Yes. You generally must report your share of partnership income whether or not the partnership distributes cash. This may create a situation where you have tax without corresponding distributions, so planning is important.
What happens if the partnership has a foreign partner?
If the partnership has a foreign partner and earns income effectively connected with a U.S. trade or business, the partnership may have withholding obligations under IRC § 1446 and must use Forms 8804, 8805 and 8813 as required.
How should I choose between forming a partnership, an LLC taxed as a partnership, or electing corporate treatment?
The decision depends on multiple factors including number of owners, desired liability protections, state formation costs, tax flow considerations, ability to allocate profits/losses, self-employment tax considerations, capital contributions, and exit strategy. We recommend a tailored consultation to analyze your specific facts and goals.
Why file your taxes with Mraz Tax Solutions?
We specialize in individual and small business tax returns. Whether you're an employee filing a W-2, a contractor taking part in the sharing economy filing a 1099 or a small business owner, we are here to help. We understand the importance of minimizing your tax and getting you the maximum refund you are legally entitled to. In order to do this and to prepare a complete and accurate return we take the time to get to know you and your goals.