Disadvantages and Tax Consequences of Partnerships Essay

Disadvantages and Tax Consequences of Partnerships - Essay Example This paper discusses that  a partnership has some tax benefits in comparison to other different business entities. Thus, for example, loss or income distribution or allocation should be proportional to the ownership stakes of the stakeholders of a given corporation, whereas for a partnership, it may allocate cash flow or income amongst the partners that suits them best. In addition, a partnership allows resource pooling, needs basic filling requirements, avoids double taxation like that of corporate profits together with being reasonably easy to suspend operations. A partnership can therefore liquidate tax-free, but a corporation is usually taxed at the entity point whenever it liquidates. The other tax break for a limited partnership concerns limited partners. Normally, general partners usually pay self-employment taxes since they are involved actively in the daily running of their business operations.This essay stresses that  self-employment taxation comprises of Medicare and S ocial Security taxes put together and normally accounts for 15.3% of the total income of a partner as of 2013.It is important to note that a limited partner who does not take part in the operation of the business is not entitled to self-employment taxation.  A conventional partnership usually has authority distributed equally between the partners, and thus, no hierarchy of authority exists.  Inflexibility is particularly undesirable when the partners have existing disagreements amongst themselves.