Which of the following statements is true regarding a partnership?
A) A partnership is taxed as a separate entity.
B) Only professionals, such as doctors and lawyers may form a partnership.
C) A partnership must file an information return that reports the partnership profit and the partners' share in that profit.
D) A partner's income tax is based on the amount of money the partner withdrew from the partnership during the year.

Question

Quizplus · Accepted Answer

Partnerships are not taxed as separate entities (unlike corporations); instead, they file an information return (Form 1065 in the United States) that reports the partnership's income, deductions, gains, losses, etc., and each partner's share of these items. The partners then report their share of the partnership's income or loss on their personal tax returns and pay taxes accordingly. This process is known as "pass-through" taxation, where the partnership itself does not pay income tax, but the profits or losses are passed through to the individual partners to be reported on their personal tax returns.

Which of the Following Statements Is True Regarding a Partnership