How are partnership items treated for tax purposes?

A partnership itself is not subject to federal income tax. Instead, the partnership’s income, gains, losses, deductions, and credits are passed through to the individual partners based on their respective ownership interests in the partnership. These items are then reported on each partner’s individual tax return. This concept is known as the ‘pass-through’ treatment of partnership taxation. The partnership must file Form 1065 to report the allocation of these items to the partners, who in turn report their share on their individual tax returns, such as Form 1040 for individuals or Form 1120 for corporations.