General Information on forming Partnerships including Tax and Payroll Compliances

 

Partnership is relatively common business entity structure when you have at least 2 members in your business. There are few other popular variations to the partnership structure -General Partnership, Limited Partnership (LP) and Limited Liability Partnership (LLP).

Few important points relating to General Partnership

1. Fewer tax compliance requirements
2. Lower cost of running a partnership business as compared to others eg: C or S Corporation.
3. Highest risk to the partners as there is no liability protection to the partner’s personal assets
4. Easy to create a partnership business structure.

Few key points of forming a Limited Partnership

Limited partnership has General Partners and Limited Partners. This type of partnership has at least one member with unlimited liability (General Partner).

1. Limited partners are not involved in day to day management of business.
2. General partners manage day to business activities. They also have unlimited liability, therefore in the event of any legal disputes their personal assets may be used to satisfy business debts.
3. This type of business structure is best suited for short term joint ventures.

Few key points about Limited Liability Partnership

1. Limited Liability Partnership is a business structure that can be created for certain type of professional service businesses Eg: attorneys, architects, dentists, doctors etc.
2. This type of business structure does not shield the partners for liability of their personal acts. The personal assets of the partners cannot be used to satisfy business debts and liabilities.

Tax and Payroll Compliance for Partnerships

Following are the most important forms

1. 941: Social security and Medicare tax report for Partnership employers.
2. 940: Annual federal unemployment tax reports for Partnership employers.
3. 1120-S: Annual income tax assessment for Partnership employers.
4. W2- This is required to be distributed end of the year to employees.
5. K-1- This is the form that provides the partners’ share of profits, losses, deductions or credits.
6. 1099- This is the 1099 Contractor report to be distributed to the contractors
7. 1065-File federal partnership tax return due by 3/15 each year. Partnerships can file a 6 month extension with due date of 9/15.

 

 

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