Maxine Aaronson, Attorney at Law
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Tax Newsletter

  • Income Tax Dischargeability
    Government income taxes may or not be dischargeable under a Chapter 7 (liquidation) bankruptcy. Income taxes are usually considered “priority unsecured debts,” and have a higher need to be paid over other unsecured debts... Read more.
  • Can You Deduct Expenses Related to Gifts?
    If you give business gifts either directly or indirectly to clients or potential clients, you may be able to deduct some or all of the cost of the gifts. Business gifts that may typically be characterized as entertainment... Read more.
  • Chapter 7 and 11 Bankruptcy of Employers and Employee Benefits
    Generally, a business that is facing serious financial difficulties might seek to file for bankruptcy under either Chapter 7 or Chapter 11 of the U.S. Bankruptcy Code. Chapter 7 bankruptcy is more severe, as it involves a liquidation of... Read more.
  • Recent Changes in Federal Estate Taxes
    Much to the relief of many, the American Taxpayer Relief Act of 2012 (“2012 Tax Act”) was enacted in the beginning of 2013, making permanent many of the tax benefits that were scheduled to expire at the end of 2012. The... Read more.
Tax News Links

Self-Employment Tax Requirements and Partnerships

The Internal Revenue Service generally requires self-employed individuals to pay self-employment taxes. How does this self-employment tax requirement apply to partnerships?

Generally, if you are a partner, your proportionate share of a partnership’s income or loss must be considered to determine your self-employment income. Guaranteed payments from the partnership are included.

Limited Partners

Because limited partners generally do not participate in the decision-making process of the partnership, only guaranteed payments from the partnership are included in the calculation of self-employment income.

Retired Partners

Sometimes retired partners still receive income from the partnership. The IRS does not consider this income to be subject to self-employment tax, as long as the partner receives lifetime periodic payments and does not provide any services to the partnership.

Husband & Wife Partners

If a husband and wife operate a business as a partnership, formally or informally, special forms are required by the IRS for reporting income and losses. However, just because a husband and wife are both in the same business does not necessarily mean that they are partners. One may be working for the other as an employee. In that case, the typical Social Security/Medicare taxes must be paid by the employer/spouse on behalf of the employee/spouse.

Investment Club Partnerships

A common partnership entity is an investment club partnership. This type of partnership has a number of individuals who collectively invest for profit. However, income will not be considered as self-employment income if the investment is limited to:

  • Investing in savings certificates, stock, or securities
  • Collecting interest or dividends for its members’ accounts