2022 – 05/23 – Partners may have to report more income on tax returns than they receive in cash

If you’re a partner in a business, you may have come across a situation that’s puzzling. In a given year, you may be taxed on more partnership income than was distributed to you from the partnership in which you’re a partner. Why? It’s due to the way partnerships and partners are taxed. Unlike C corporations, partnerships aren’t subject to income tax. Instead, each partner is taxed on partnership earnings whether or not they’re distributed. And if a partnership has a loss, it’s passed through to partners. (However, various rules may prevent partners from currently using their share of a partnership’s loss to offset other income.) Contact us if you’d like to discuss how a partner is taxed.


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