Advantages and disadvantages of partnerships
A partnership business is easy to establish and its start-up costs are very low. The partners can raise the required amount of initial capital easily and make it a very large start-up with a higher borrowing capacity. The business affairs of individual partners are private and there is limited external intervention like government regulations. However, in partnerships, partners have unlimited liability to debts and losses incurred in the business. Every individual partner is jointly liable for any debts, which are shared equally based on start-up ratios. Also, every partner is considered an agent of the business and is responsible for the actions of other partners.
How the partnership is taxed
The IRS considers partners as part of the partnership business when it comes to taxation. Therefore, once the profits and losses of the business have passed through to the partners, the IRS collects taxes from the share of the partners’ profits based on their respective income tax returns (Fay, 2020). Every partner’s share of profits and losses are always outlined in the partnership agreement. Therefore, the IRS can deduct approximately 20% of their business income per the provisions of the Tax Cuts and Jobs Act; and this is called the 20% pass-through tax deduction for business owners. The IRS accomplishes this task after reviewing the completed Form W-2, Form W-3, and the transmittal of wage and tax statements.
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Other than income taxes, there are also other taxes like property tax and taxes on goods and services. Property tax is levied on the value of a real estate or any other property that is considered personal and it is imposed on a recurring basis by the local government (OECD, 2014). In this case, property tax forms are used to pay the taxes. Also, goods and services tax is the value-added tax that is levied on goods and services that are purchased for domestic consumption.
References
Fay, B. (2020). Debt.org. Types of Taxes. Retrieved from https://www.debt.org/tax/type/
OECD. (2014). Chapter 2: Fundamental principles of taxation, in Addressing the Tax Challenges of the Digital Economy , OECD Publishing, Paris. https://www.oecd-ilibrary.org/docserver/9789264218789-5-en.pdf?expires=1580499706&id=id&accname=guest&checksum=2397AEC8006D10A19A583D3BE6ACB641
