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A partnership is not subject to federal income taxation, but the partners are individually responsible for paying taxes on the partnership's income. Each partner must report their distributive share of the partnership's income, gain, deduction, loss, and credit on their tax returns. Partnerships must file an annual tax return (Form 1065) to report income and deductions. Partners receive a Schedule K-1, which shows their share of tax items, to report on their personal tax returns. Section 702 of the Internal Revenue Code lists taxable income items for partnerships.
