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Tax Statistics on Partnerships and LLCs

The Latest Tax Statistics on Partnerships and LLCs

Tax Statistics on Partnerships and LLCsA partnership is not taxpaying entity, but files an annual tax return, Form 1065, to report income, deductions, and other items. These items pass through to partners, who may be individuals, other partnerships, corporations, or other entities. Partners report their allocable share of these items on their own tax returns.

Tax statistics from the IRS show that the number of partnerships (including limited liability companies that file tax returns as partnerships) in the U.S. declined for the first time since 1993. For 2019 (the most recent year for statistics), there were 3.8 million partnerships (4.7% less than in 2018), representing more than 25.3 million partners (down from 27.4 million partners the year before). Statistics from 2018 were covered in a prior blog.

Here are some other interesting tax-related statistics about these filers:

  • Limited liability companies (LLCs) with 2 or more members accounted for the majority (71.5%) of all partnership returns. This is the 18th consecutive year that LLCs dominated the number of partnership returns filed. The number of LLC members grew to 10.2 million (a 5.25% increase over 2018).
  • Limited partnerships represented only 10.8% of all partnerships. Nonetheless, they reported the most profits (30.3% of all returns) and the largest share of partners (37%).
  • Total receipts (revenue) for filers increased by 5% from the previous year to $8.1 trillion. But profitability was down by 14%, increasing by 8.9%.
  • More than 97% of all partnership returns were filed electronically.

Which industries dominate the number of partnership returns and results? Real estate and rental and leasing accounted for about half (50.8 percent) of all partnerships and nearly a third (32.7%) of all partners. The finance and insurance sector reported the largest shares of total net income (loss) (57.9%), total assets (57.3%), and total receipts (24.2%) for 2019.

Why were profits down? There are always a number of reasons why net income for tax purposes declines. For the real estate industry, statistics show the main reason was an increase in expenses. Remember: these statistics are pre-pandemic.

Why do these statistics matter?

S.N.D. North, past president of the American Statistical Association, said in 1910: “The science of statistics is the chief instrumentality through which the progress of civilization is now measured, and by which its development hereafter will largely be controlled.” How prescient he was.

Statistics are often the underpinning of tax law changes, or at least used to justify changes spurred by policy or politics. Annual statistics from the IRS on partnerships and multi-member LLCs shows the growth (or lack of growth) of business in the U.S. The statistics reflect what’s going on in the economy.

Final thought

With the number of new business startups growing (more than 4 million from January through September 2021), the choice of entity for new companies becomes more important than ever. It’s worth noting that the number of S corporations still outstrips partnerships (including LLCs filing as partnerships).

According to the latest IRS Data Book for FY 2020, there were 4,470,095 partnership returns filed as compared with 5,044,303 S corporation returns. The debate between becoming an S corporation or limited liability company continues…