In tax treatment, how is income characterized in a Partnership?

In a partnership, income is characterized as passed through to the owners, meaning that it is not taxed at the entity level like in a corporation. Instead, each partner reports their share of the partnership's income, gains, losses, and deductions on their individual tax returns. This structure allows the income to be taxed at the individual partner's rate, which can vary based on their overall taxable income.

This pass-through taxation system is beneficial as it helps to avoid the double taxation that typically occurs with corporations, where income is taxed at both the corporate level and again at the individual level when distributed as dividends. The partnership itself does not pay income tax; instead, it acts as a conduit for income to the partners. This is a fundamental characteristic of partnerships and aligns with their legal structure of being a flow-through entity.