Question

For federal income tax purposes, a partnership is

	a	Required to distribute profits to the partners to avoid tax liability.
	b	A nontaxable entity.
	c	Treated the same as an S corporation.
	d	A taxable entity.

Answer 1

A partnership is not a taxable entity under federal law. There is no separate partnership income tax, as there is a corporate income tax. Instead, income from the partnership is taxed to the individual partners, at their own individual tax rates. For tax purposes, all of the income of the partnership must be reported as distributed or “passed-through” to the partners, who will then be taxed on it through their individual returns.

profits are distributed to the individual partners