TAX PLANNING - Partnership

In Terms of Tax Planning: Advantages & Disadvantages of Partnerships

As Tax Accountants we can tell whether a Partnership is the best structure for you and your partners.

No State Registrations

One big advantage of a general partnership is that you don't have to register with your state and pay an often hefty fee, as you do to establish a corporation or limited liability company.

Filing Income Tax Returns is Easy

Because a general partnership is normally a " pass through" tax entity (the partners, not the partnership, are taxed unless you specifically elect to be taxed like a corporation) filing income tax returns is easy.

Partner Trust

But given that the business-related acts of one partner legally bind all others, it is essential that you go into business with a partner or partners you completely trust.

Partnership Aggreement

It is also essential that you prepare a written partnership agreement establishing, among other things, each partner's share of profits or losses, day-to-day duties and what happens if one partner dies or retires.

Partner Liability

A major disadvantage of doing business as a general partnership is that all partners are personally liable for business debts and liabilities (for example, a judgment in a lawsuit). While it's true that a good insurance policy can do much to reduce lawsuit worries and that many small, savvy businesses don't have debt problems, it's also true that businesses which face significant risks in either of these areas should probably organize themselves as a corporation or LLC.