What is investment income that is distribution to a partner in a partnership called? Is is considered business income, unearned income, do you pay Self Employment tax on this income?

Question

What is investment income that is distribution to a partner in a partnership called? Is is considered business income, unearned income, do you pay Self Employment tax on this income?

Answer 1

Rina,

Investment income is considered unearned income. However, partners must receive a K1s from a partnership (which replaces a W2) and that K1 must be files with the IRS. The partnership does not pay taxes, but the partner will pay self-employment taxes on an individual tax return.

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