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Partnership taxation is the concept of taxing a partnership business entity. Many jurisdictions regulate partnerships and the taxation thereof differently.

Many common law jurisdictions apply a concept called "flow through taxation" to partnerships. Partnerships are a flow-through entity where the taxes are assessed at the entity level but which are applied to the partners of the partnership.

Partnership taxation is codified as Subchapter K of Chapter 1 of the U.S. Internal Revenue Code (Title 26 of the United States Code). Partnerships are "flow-through" entities for United States federal income taxation purposes. Flow-through taxation means that the entity does not pay taxes on its income. Instead, the owners of the entity pay tax on their "distributive share" of the entity's taxable income, even if no funds are distributed by the partnership to the owners. Federal tax law permits the owners of the entity to agree how the income of the entity will be allocated among them, but requires that this allocation reflect the economic reality of their business arrangement, as tested under complicated rules.


Louis F. Patten C.P.A. is a full service accounting firm.

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