[vc_row][vc_column][vc_column_text]
The generally favorable federal income tax rules for partnerships are a common reason for choosing to operate as a partnership with multiple partners instead of as a corporation with multiple shareholders.
These are the most important partnership tax benefit rules:
- You get pass-through taxation.
- You can deduct partnership losses (within limits).
- You may be eligible for the Section 199A tax deduction.
- You get basis from partnership debts.
- You get basis step-up for purchased interests.
- You can make tax-free asset transfers with the partnership.
- You can make special tax allocations.
Partnership taxation is not all great. There are a few complications to understand.
- Exposure to self-employment tax
- Complicated Section 704(c) tax allocation rules
- Tricky disguised sale rules
- Unfavorable fringe benefit tax rules
You also must consider the following disadvantages for limited partners:
- Limited partners usually get no basis from partnership liabilities.
- Limited partners can lose their liability protection.
- You need a general partner.
No type of entity (including a limited partnership in which you are a limited partner) will protect your personal assets from exposure to liabilities related to your own professional malpractice or your own tortious acts.[/vc_column_text][us_image image=”1751″][/vc_column][/vc_row]
