What type of entity is a partnership classified as for tax purposes?

A partnership is classified as an entity disregarded for tax purposes because it is not taxed at the entity level. Instead, partnerships operate under a pass-through taxation system. This means that the income, deductions, and credits of the partnership pass through to the individual partners, who report their share on their personal tax returns. As a result, the partnership itself does not pay federal income tax, but rather, the individual partners are responsible for reporting and paying taxes on the income they receive from the partnership.

This classification allows for more straightforward taxation and avoids the issue of double taxation that can occur with corporations, where the entity pays taxes on its income, and shareholders pay taxes again on dividends received. Additionally, this treatment is different from a sole proprietorship, which is owned by a single individual and also benefits from pass-through taxation but is not classified as a partnership. Tax-exempt organizations, on the other hand, are entities that do not pay taxes on their income because they are established for charitable, educational, or other exempt purposes.