LLC vs partnership: liability and taxes for co-owners in 2026
A two-member LLC and a partnership file the same federal return; they differ in who is liable and, sometimes, in who owes self-employment tax.
Tax on the LLC profit
$23,199
No LLC return: Schedule C on your Form 1040
| Self-employment tax | $12,602 |
| Federal income tax | $6,467 |
| California income tax | $3,320 |
| California LLC fees and minimum tax | $810 |
Computed by Radif Partners from IRS documents for tax year 2026 · How we calculate · no email asked, nothing sold
For federal income tax, an LLC with two or more members and a partnership are the same thing: unless the LLC elects corporate treatment, both file Form 1065, due March 15, 2027 for calendar year 2026, pay no income tax themselves and send each owner a Schedule K-1. The differences are legal. In a general partnership, every partner is personally liable for the partnership's debts. A limited partnership has at least one general partner with that liability and one or more limited partners whose liability stops at what they contributed. In a limited liability partnership, a partner is generally not liable for the firm's debts or for another partner's acts. In an LLC, no member is personally liable for its debts. Self-employment tax follows the role: a general partner with an $80,000 share owes $11,304 in 2026, while a limited partner pays it only on guaranteed payments for services, $4,239 on $30,000 of them.
A partnership in tax law is wider than most people think. The Instructions for Form 1065 define it as the relationship between two or more persons who join to carry on a business, each contributing money, property, labor or skill and expecting to share profits and losses, whether or not they signed an agreement. Two freelancers who split the income of a shared client list may already be one. A general partner's share is self-employment income, and half of that tax is deductible, as estimated below.
What the half-SE-tax deduction is worth
Income tax saved by the deduction
$1,399
| Deduction (half of SE tax) | $6,358 |
| SE tax itself | $12,717 |
QBI left out of this quick check.
Four forms of shared ownership
The same instructions define each variant. The definitions are federal, but the entities themselves are created under state law, and the details of liability come from the state statute.
General partnership
Composed only of general partners, each personally liable for the partnership's debts. No state filing is needed to form one. It is the default when people go into business together without creating an entity.
Limited partnership (LP)
Formed under a state limited partnership law, with at least one general partner and one or more limited partners. A limited partner's liability for the partnership's debts is limited to the money or property contributed or promised. The general partner runs the business and carries the unlimited liability.
Limited liability partnership (LLP)
Formed under a state limited liability partnership law. Generally, a partner in an LLP is not personally liable for the LLP's debts, nor for the acts or omissions of another partner solely by reason of being a partner. Who may register as an LLP, and on what conditions, is set by each state's statute, so read it before choosing this form.
Limited liability company (LLC)
Formed by filing articles of organization. Unlike a partnership, none of the members is personally liable for its debts. With two or more members and no election, the IRS classifies it as a partnership (IRS, LLC), so its tax filings are those of a partnership.
The same federal return for all four
Every domestic partnership files Form 1065 unless it had no income and no deductible expenses, and LLCs classified as partnerships have the same filing requirements. The return is due by the 15th day of the 3rd month after the tax year, March 15, 2027 for calendar 2026. It reports the income, and each partner receives a Schedule K-1 with their share, to be reported on Schedule E of Form 1040 whether or not it was distributed. The IRS partnerships page adds that partners are not employees and should not receive a W-2. Filing late costs $255 per partner for each month or part of a month, for up to 12 months, even if the partnership owes nothing.
Self-employment tax: where the forms differ
The real tax difference between these structures sits on Schedule SE. According to the Schedule SE instructions, a general partner includes the net earnings from self-employment shown in box 14, code A, of the K-1. A limited partner includes only guaranteed payments for services actually rendered to or on behalf of the partnership. Whether someone counts as a limited partner for this purpose depends on section 1402(a)(13) of the Code, not on the label.
| Partner | Income from the partnership | Subject to SE tax | SE tax 2026 |
|---|---|---|---|
| General partner | $80,000 share of profit | $80,000 | $11,304 |
| Limited partner, no services | $80,000 share of profit | $0 | $0 |
| Limited partner, paid for services | $30,000 guaranteed payments + share | $30,000 | $4,239 |
For LLC members, the answer is less settled. The Form 1065 instructions note that some members of LLCs classified as partnerships may be treated as limited partners for certain purposes, but whether a member escapes self-employment tax on a share of profit depends on that member's role and on how section 1402(a)(13) applies to them. A member who works in the business should expect self-employment tax on the share; a passive investor member should ask a CPA. The calculator above treats each active member like a general partner.
Spouses running a business together
A married couple who jointly own and operate an unincorporated business and share its profits are partners and must file Form 1065, unless they qualify as a qualified joint venture: both spouses materially participate, they are the only owners and they file a joint return. A QJV lets each spouse report on their own Schedule C and still earn Social Security credit. The election is not available to an LLC, because it is a state-law entity, as the single-member LLC guide explains.
All your 2026 taxes on 1099 income
Federal total (income + SE tax)
$16,647
| SE tax | $11,304 |
| Income tax | $5,344 |
| QBI deduction | $11,650 |
State tax: choose your state in the full calculator.
Choosing between them
For two or more people starting a business, the LLC usually gives every owner the protection that only limited partners and LLP partners get in a partnership, with the same tax filing. A general partnership costs nothing to form but leaves each partner answerable for the others' business debts. An LP fits when some owners invest and others manage. An LLP suits partners who want to keep the partnership form while limiting their exposure to each other's acts, where state law allows it. The LLC taxes guide shows what each member pays on a given profit, the business structure overview adds the corporate options, and the Schedule SE guide details the self-employment computation.