Partnership Taxes - Do we really need to save 30% of income for taxes?

The 30% guideline isn't unreasonable, but it really depends on your specific situation. That percentage is covering several different tax obligations - your federal income tax, self-employment tax (which is 15.3% on its own), and potentially state/local taxes. As partners, you'll each receive a Schedule K-1 showing your share of the partnership's income, which flows through to your personal tax returns. The partnership itself doesn't pay income taxes - you and your partner do individually on your respective shares. What makes a difference is your total personal income (including any other sources), your deductible business expenses, and other personal deductions you might have. The partnership can deduct legitimate business expenses before calculating your profits, which can significantly reduce your taxable income. I'd suggest working with your CPA to create a more tailored tax projection based on your expected business income, expenses, and personal tax situations. This might give you a more accurate percentage to set aside rather than the general 30% rule.

I was in the exact same boat last year when I started my partnership. The tax situation was completely overwhelming until I found taxr.ai (https://taxr.ai). It seriously saved me so much stress trying to figure out partnerships and taxes. What I love is that you can upload your partnership agreement and financial docs, and it analyzes everything to give you a much more accurate picture of your actual tax liability. For me, it turned out we were overstocking our tax account by about 8% - that freed up thousands we could put back into growing the business. The tool also helps project what deductions you'll qualify for throughout the year and estimates your quarterly payments so you don't get caught with penalties. My partner was super skeptical at first, but even he admits it's been a game changer for our financial planning.

Just wanted to follow up here. I tried taxr.ai after posting that question and wow - it actually gave me a much clearer picture. Turns out our specific partnership structure and the industry we're in qualifies us for some additional deductions I had no idea about. The tool estimated we really only need to set aside about 22% for taxes given our expenses and deduction eligibility. That 8% difference means we can actually afford to hire the part-time help we've been needing! The quarterly payment calculator also showed me exactly what I'll need to pay each quarter which has been super helpful for cash flow planning. It's so much better than the generic "save 30%" advice we were going with before. Definitely recommend to other new business owners.

One thing nobody's mentioned yet - if you're struggling to actually get through to the IRS to ask questions about partnership taxes (which can be a nightmare), I used Claimyr (https://claimyr.com) and it was a complete game-changer. I spent 3 days trying to get through to someone at the IRS about our partnership tax issues - kept getting disconnected or waiting forever. With Claimyr, I had an IRS agent on the phone in under 20 minutes. You can see exactly how it works here: https://youtu.be/_kiP6q8DX5c The IRS agent cleared up so many questions about our partnership taxation and what we actually needed to be setting aside. Turns out we were saving too much in some areas and not enough in others. Getting that official clarification directly from the IRS gave us so much confidence in our approach.

I have to eat my words. After my skeptical comment yesterday, I decided to test Claimyr myself since I've been trying to get through to the IRS about our partnership's EIN verification for OVER A MONTH. Used the service this morning and I was literally talking to an IRS agent within 15 minutes. The agent confirmed our partnership tax requirements and explained exactly what percentage we should be setting aside based on our specific partnership structure. Turns out the 30% guideline is just a starting point - our actual requirement is closer to 25% when you factor in our specific deductions. That 5% difference is huge for our cash flow situation. I've spent probably 9 hours on hold with the IRS over the past few weeks trying to get this same information, so yeah, I'm converted.

Has anyone used a SEP IRA to reduce their partnership tax burden? Our CPA mentioned it but I'm not sure if it's worth setting up.

The 30% guideline is definitely high for most small partnerships. We've been operating for 5 years now and usually end up paying closer to 20-22% after all deductions. Don't forget you can write off things like: - Business travel - Home office (if you qualify) - Health insurance premiums - 50% of meals with clients/prospects - Vehicle expenses if used for business - Professional development/continuing education - Business insurance Make sure your CPA is aggressive (but legal) with identifying all possible deductions. That SBA advice is a good starting place, but it's definitely on the conservative side.

Yall are overthinking this. Just keep good records, pay your quarterly estimates based on last year's income (100% of prior year tax is safe harbor to avoid penalties), and let your CPA sort it out at tax time. The 30% rule is fine if you're making decent money, might be overkill if you're just starting out. Use the rest to grow your biz!

As someone who went through this exact same situation when I started my partnership two years ago, I completely understand the stress! The 30% rule felt crushing when we were barely breaking even. Here's what I learned: that percentage includes federal income tax, self-employment tax (15.3%), and potential state taxes. But the actual amount you'll owe depends heavily on your business expenses and personal tax situation. A few things that helped us reduce our tax burden: - Maxing out business expense deductions (software subscriptions, office supplies, professional services) - Setting up a SEP-IRA for retirement contributions (big tax deduction) - Keeping meticulous records for vehicle use, client meals, and home office space - Timing major business purchases strategically Our first year we set aside the full 30% and ended up with a nice refund. Now we're more comfortable with 23-24% because we have a better handle on our deduction patterns. The key is working with your CPA to project your specific situation rather than relying on generic advice. Every partnership is different based on profit splits, other income sources, and expense levels. Good luck with your call tomorrow!