Operating your business as a partnership can offer real advantages. This is also true for LLCs (treated as partnerships for tax purposes).
Why?
Because operating your business as a partnership or LLC gives you the right to make “special tax allocations” of tax items among the partners.
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What is a special tax allocation?
Partners often own different percentages of a business.
A special tax allocation allocates an item of partnership loss, deduction, income, or gain, among the partners… An allocation that doesn’t correspond to the partners’ overall ownership interests.
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What’s the appeal of a special tax allocation?
A special tax allocation is a great way to attract new partners.
You see, if a new business needs to attract capital, the partnership can approach an investor and offer special allocations like early depreciation-deductions. These can give the investor immediate write-offs.
Also, some investors may want partnership-income to offset their existing net operating losses. In this case, special allocations of ordinary taxable income can be made.
Here’s just some of what you’ll learn
when you read the full article titled
Tax Tips: Take Advantage of Partnership Special Allocations
- The benefits of pass-through taxation
- A detailed look at how special tax allocations work
- Federal income-tax rules that govern partnership tax allocations
- How to make your special tax allocation stand up to IRS scrutiny
- Types of partnership ventures that can involve special tax allocations
- And much more