What’s Your Taxable Income—If You Don’t Mind My Asking? Computing Taxable Income for Partnerships

The most prominent tax characteristic of a partnership or LLC is that these entities are flow-through entities for tax purposes. Consequently, the entities do not pay taxes themselves. Rather, they report to the IRS their income and the partners' or members' distributive shares of this income. who then pay their appropriate share of taxes, if any, on their own tax returns. But while partnerships and LLCs are not taxpaying entities, the Code routinely refers to the net ordinary income or loss from the operations and investments of these flow-through entities as "taxable income or loss." Learn more about the computation.

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