Are active (general) partnership income considered earned business income and do they file a K1 to report wage? Can partnerships also receive W2?

Question

Is limited partnership income considered unearned or passive income and what form do the wages flow through on, do they have to file a schedule D?Are active (general) partnership income considered earned business income and do they file a K1 to report wage? Can partnerships also receive W2?

Answer 1

Hello Rina,

Your question uses concepts that are not related, but I will try to offer some clarify. First, the type of entity does not define the type of income reported. For example, unearned income is generated from investments etc., where the participants are not actively "working." The IRS specifically defines passive income: a tax payer cannot make that definition. Partnerships can issue W2 to their employees, but not their partners. The partners must receive K1s, which will show income passed-through for their own tax returns. Finally, while the partnership can file a Schedule D for the partnership transactions, these schedules cannot relate to individual partner transactions.

I hope that was helpful. Feel free to reach out if you need support or a success coach with individual, partnership and corporate tax issues.