Carol and Candace are equal partners in Peach Partnership. In the current year, Peach had a net profit of $75,000 ($250,000 gross income - $175,000 operating expenses) and distributed $25,000 to each partner. Peach must pay tax on $75,000 of income.

Question

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In a partnership, the entity itself does not pay income tax on its profits. Instead, the profits or losses are passed through to the partners, who report them on their individual tax returns.

Carol and Candace Are Equal Partners in Peach Partnership