A partnership is when two or more people come together to run a business and share in the profits and losses. Each partner may contribute money, property, or services to the business, and then share in any profits or losses.

In a partnership, power is shared between the partners. Partners usually have unlimited liability, unless an agreement says otherwise. Each partner can be responsible for all business debts. If one partner makes poor decisions, it can harm the business and even affect the other partner’s personal assets.

The partnership files an informational return, Form 1065, and provides each partner with a Schedule K-1 showing their share of income, deductions, and credits. Each partner reports their share of the partnership’s income or loss on their personal tax return.

For more information about Partnerships, see IRS Publication 541, “Partnerships,” as well as the instructions for Form 1065. You can also visit the Small Business and Self-Employed Tax Center for additional resources and guidance.