Tax Disadvantages Of A Partnership?

Losses can be taken by the partners, but they are more limited than in a sole proprietorship. Certain expenses such as charitable contributions cannot be deducted by the partnership, but are passed through to the partners. Why is this important? Because not deducting an expense at the partnership level raises the amount of partnership profit that is attributed to each partner. This means that there is more income tax liability – unless the partner can deduct the expense on his or her tax return.

Greater partnership profit can also mean more “self employment tax” for partners who are active in business partnerships. Self employment tax is not reduced, even if the partner can deduct the expense because it is figured on the partnership profit.

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