Partnerships do not pay federal income taxes as an entity. Each partner declares his or her profits from the partnership as personal income. The partnership is referred to as which of the following?

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Partnerships are considered pass-through entities because the profits pass through the business directly to the partners, who then report the income on their personal tax returns. This structure avoids the double taxation that can occur with corporations, where both the entity and the shareholders may pay taxes on the same income.

Partnerships Do Not Pay Federal Income Taxes as an Entity