How Do I Form A Partnership?

In general, any two or more people (including husband and wife) who go into a trade or business together have created a partnership, and are required to file an annual partnership return (Form 1065). State rules vary, with some requiring that partnerships register with the state and file an annual return as well, and possibly pay annual fees for the right to do business in that state.

A partnership is a not a taxable entity of itself, but a conduit through which partners report the income and deductions of the business. They each receive a Schedule K-1, which they use to report their share of partnership income (and separately-stated pass-through items) on their personal income tax returns.

A partnership return is not a very "user friendly" form, and those without a good knowledge of the applicable laws would be wise to seek out professional preparation assistance.

Failure to file a partnership return can result in a penalty of $50 per partner each month it is late, up to a maximum of five months. For example, a partnership with two partners that files more than five months late would owe $500, even if there is no income from the business!

(c) Copyright 1995-2015 by TaxLogic