Chapter 7 - 2.1 - Steps to Tax a Partnership Flashcards
1
Q
What is a partnership?
A
A body of persons carrying on business together with a view to profit: effectively a group of sole traders acting together
2
Q
How is each partner taxed?
A
As an individual on their share of the taxable profit
3
Q
How is tax adjusted trading profit for the accounting period shared between partners?
A
By using the profit sharing agreement
4
Q
What are the three stages of the profit sharing agreement?
A
- allocate ‘salary’
- assign ‘interest on capital’
- share remaining profit using the profit sharing ratio (PSR)
5
Q
What do you do after sharing the tax adjusted trading profit for the accounting period between partners via the profit sharing agreement?
A
Tax each partner individually using the tax year basis
6
Q
A
