Question

Debra wanted to form a partnership with Lawrence. He agreed and they became co-owners in an equal partnership. This year, after expenses, the partnership had a profit of $200,000. How will the taxation of this profit be handled?

a. Since the partnership was Debra's idea, she will pay income tax on the profit on her personal tax return.
b. The business will pay half of the tax liability and Debra and Lawrence will pay the other half.
c. Debra and Lawrence must both pay tax on the business's profit.
d. The business itself will pay the taxes on the business's profit.

Answer 1

Debra and Lawrence must both pay tax on the partnership's profit.

Step-by-step explanation:

In a partnership, each partner pays taxes on their share of the income, and the business itself does not have to pay taxes. So in this case, Debra and Lawrence will both pay tax on the partnership's profit. This means option c. Debra and Lawrence must both pay tax on the business's profit is the correct answer.