ABA Family Legal Guide

Forming and Operating a Small Business

Types of Business Organizations

Partnerships

How are partnerships taxed?

Partnerships are taxed on a conduit, or flow-through, basis. This means that the partnership itself does not pay any taxes. Instead, the income and various deductions and tax credits from the partnership are passed through to the partners based on their percentage interest in the profits and losses of the partnership. Then the partners include the income and deductions in their individual tax returns.