Question

1. Your client comes to you and tells you she wants to start a new business. She said that she has read that being taxed as a partnership is the way to go, but is not sure why.  What are the benefits of being taxed as a partnership? Do you agree with her assessment?She is not sure what type of partnership her business should be.

1a) She has two businesses that her and her partners want to start and they want them in separate entities. The first businesses has very little risk and therefore will not be subject to much, if any, liability. The other business has a large amount or risk due to the nature of the business.  What type of partnerships should these two businesses be?

Answer 1

When two or more persons comes together and enters an agreement for setting up a business and sharing its profits and losses is called partnership.

The taxation advantages of a Partnership business are:

1.The partners of a Partnership business has to declare all the profits and losses, their income from the business in their personal tax returns.This avoids tax issues such as double taxation of income.

2.General partnership business doesn't have to pay any annual tax as governed by partnership act.

3.IRS considers all the partners in the business are equal until and unless there is difference in the share of profits and losses. So when a new partner joins, the existing partners can take a tax break as the size of the taxable assets will reduce.

4. There are no income tax burdens imposed on the contributions made or distributions from a partnership business.

1 a)

For high risk ,Limited liability partnership can be formed as the partners in this business will not be responsible to sell off their assets in case of huge company losses.

For low risk and no liabilty, Partnership business can be formed.