Question

how are partnership profits allocated and taxed?

Answer 1

Solution. A partnership business is one with association of two or more partners with mutual legal agreement. For a partnership to sustain, objective of profit making should be attained. Such profit allocation and tax be done on the basis of service employed or on the basis of amount of capital invested/balance by respective partners or according to the agreed sharing ratio of profits and losses by the partners or equally in case of absence of agreement. Tax is paid on the amount of such shared profit earned by the partners during an accounting period as pass-through entity and should be filed under the guidelines established by Internal Revenue Service.