Have a Tax Question? Ask a Tax Expert
My husband has a small construction partnership where they do side work. This past year they only earned $1,900. For 2011, their first official year as a partnership, they split everything 50/50. My question is, can my husband claim 100% of this small profit for 2012? His partner wasn't able to help with the job when they did it so it isn't fair that he pay the tax.
Hi and welcome to Just Answer!
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Some additional information about partnerships may be found in IRS Publication 541 - http://www.irs.gov/publications/p541/index.html
All business income and expenses are reported on the partnership tax return form 1065 - http://www.irs.gov/pub/irs-pdf/f1065.pdf
Partnership should issue schedules K-1 to each partner reporting pro-rata share of net taxable income - http://www.irs.gov/pub/irs-pdf/f1065sk1.pdfSo - because income tax liability is passed to partners - each partner should determine if he/she should pay estimate taxes.That is between partners how they divide profit - so is one partner did not participate - another partner may claim all income (assuming he actually received it) - but that shoudl be reported on schedule K1.
So will the partner claiming no income still receive a K1 showing $0. I ask because the other partner is ready to file his return and I have not prepared the partnership tax return yet.
No need to issue K-1 with zero income unless there are other items to report. Only one K1 will be issued in this case.
Perfect! I thought that was right. Thank you so much.