A partnership is a business with two or more owners that is taxed under Subchapter K of the Internal Revenue Code. The partnership files an information return (Form 1065) but pays no federal income tax itself. Each partner receives a Schedule K-1 reporting their share of income, deductions, and credits, which they report on their own returns whether or not cash was actually distributed. Partnerships are the most flexible entity for allocating profits: special allocations are allowed if they have substantial economic effect, and owners can contribute or withdraw property with fewer taxable events than a corporation. General partners and most active LLC members pay self-employment tax on their shares of trade or business income. Multi-member LLCs default to partnership taxation unless they elect otherwise.
Partnership
Primary authority: IRC §701; Subchapter K
The authority behind it
IRC §701; Subchapter K
Every entry in this glossary cites the statute, regulation, or IRS guidance behind it.
Worked example
Two founders split an LLC 60/40. The business earns $200,000, but only $50,000 is distributed. The 60% partner still reports $120,000 of income on her return via Schedule K-1, because partnership income is taxed as earned, not as distributed.
Want the books, the quarterlies, and the filing behind terms like this handled for you?
Talk to UsFree 30-minute review. No pitch deck.
What you get with Amadae
One flat monthly price. Real accountants who know how creators get paid.
- Every payout and 1099 categorized as it lands
- Business costs tracked as write-offs monthly
- Quarterly estimates calculated and set aside before each deadline
- Your return filed by a real accountant, S-corp math included
Free 30-minute review. Cancel any time.
Plans from
$249/mo
If you make $40K - $69K. Flat, no hourly bills.
- Monthly profit and loss reports
Keep reading
Related terms
Schedule K-1
Schedule K-1 is the form a pass-through entity issues to each owner reporting that owner's share of the entity's...
Read the definition →
Guaranteed Payments
Guaranteed payments are amounts a partnership pays a partner for services or for the use of capital that are...
Read the definition →
Limited Liability Company (LLC)
An LLC is a state-law entity that gives its owners a liability shield while leaving federal tax treatment up to an...
Read the definition →
Self-Employment Tax
Self-employment tax is Social Security and Medicare for people who work for themselves: sole proprietors,...
Read the definition →
Stop looking terms up one at a time.
Books, estimates, and filing for creators. Flat monthly price.