The Partnership Advantage: Pass-Through Taxation
Unlike a regular corporation, a partnership doesn't pay its own income tax. Instead, it "passes through" all profits, losses, and deductions to the partners, who report them on their personal returns. This avoids double taxation.
How Income Flows to Partners
1. Partnership Earns Income
The business generates revenue and incurs expenses.
2. Deductions Are Taken
Salaries, rent, depreciation, etc., are subtracted.
3. Net Income is "Passed Through"
The final net income (or loss) is divided and reported to partners on Schedule K-1.
See Deductions in Action
Use this calculator to see how business deductions reduce the total taxable income that is passed through to partners. This directly lowers each partner's personal tax bill.
Partnership Income & Expenses
Income Passed to Partners
The Qualified Business Income (QBI) Deduction
This powerful benefit allows eligible partners to deduct up to 20% of their share of the partnership's qualified business income on their personal tax return.
Your Potential QBI Deduction:
More Partner Benefits
Tax Credits
Credits for research, energy, work opportunity, and more are passed through to partners, reducing their personal tax liability dollar-for-dollar.
Flexible Allocations
The partnership agreement can allocate certain deductions or income items disproportionately to partners, allowing for flexible tax planning strategies.
Single Level of Tax
The most fundamental benefit: profits are only taxed once at the partner level, unlike C Corporations where profits are taxed at the corporate level and again when distributed to shareholders.
