Which of the following statements about the taxation of partnerships is true?
A)Both the partnership and the individuals are taxed for any profits earned.
B)Partnerships file tax returns but pass profits and losses on to partners who report them on their tax returns.
C)Partnerships use corporate tax rates in filing returns.
D)Partnerships are limited in taxes depending on number of partners.
E)None of the above about the taxation of partnerships is true.

Question

Quizplus · Accepted Answer

Partnerships themselves do not pay income taxes. Instead, they file an informational return (Form 1065 in the United States) to report their income, deductions, gains, losses, etc. The profits and losses are then passed through to the partners, who include this information on their personal tax returns, thus being taxed at their individual income tax rates. This system avoids the double taxation that can occur in corporations, where both the corporation and the shareholders may pay taxes on the same income.

Which of the Following Statements About the Taxation of Partnerships