Question

Lisa and John own a partnership that provides rental equipment for parties and special occasions. Which of the following is true about the way Lisa and John would handle company profits?

a) Profits are taxed twice
b) Profits are taxed at the individual level
c) Profits are tax-exempt
d) Profits are taxed only at the corporate level

Answer 1

In a partnership like the one owned by Lisa and John, profits are taxed at the individual level, and each partner reports their share of the income on their personal tax returns.

Step-by-step explanation:

Lisa and John own a partnership that handles profits differently compared to other business structures. In a partnership, profits are not subjected to corporate income tax; instead, they are taxed at the individual level. Each partner reports their share of the business income on their personal tax returns and pays the individual income tax on those profits. This avoids the issue of "double taxation" that is common in corporations, where the business itself pays taxes on profits before distributing dividends to shareholders, which are then taxed again on the shareholder's personal tax returns.