Partnership

Partnerships are 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.

Beginning in 2009, Oregon is assessing 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.