Asked by Chris Palomino on May 25, 2024
Verified
Which of the following statements is true about taxes in a limited partnership?
A) Limited partners are not double taxed, but general partners are.
B) Both limited partners and general partners pay taxes on their share of the profit.
C) Both limited partners and general partners are double taxed.
D) General partners, but not limited partners, pay taxes for profits of the partnership.
E) Both limited partners and general partners are double taxed, however, the amount of tax liability by limited partners is capped.
Limited Partnership
A business structure where one or more general partners manage the business and are personally responsible for its debts, and one or more limited partners contribute capital but have limited liability.
Double Taxed
The situation where the same income is taxed twice, typically referring to corporate income taxed at both the corporate level and again when distributed as dividends to shareholders.
Tax Liability
The total amount of tax owed by an individual or business to a taxing authority like the government.
- Understand the taxation and liability structure for different types of business entities.
Verified Answer
AC
Andrew CallawayMay 26, 2024
Final Answer :
B
Explanation :
In a limited partnership, both limited partners and general partners are taxed on their individual share of the profits, not at the partnership level, thus avoiding double taxation. This means that the income flows through to their personal tax returns, where they report their share of the profits and pay taxes accordingly.
Learning Objectives
- Understand the taxation and liability structure for different types of business entities.