A business partnership can take on various legal forms including, but not limited to a Limited Liability Company (LLC) or a Limited Partnership (LP). You and your business partner should come up with a partnership agreement that says in detail who gets what. When tax time comes around, you will need to file a Form 1065 on behalf of your partnership. The partnership itself doesn’t pay income tax, but “passes through” any profits or losses to its partners. This is called pass-through income.
The partnership should attach a copy of each Schedule K-1 to the Form 1065 filed with the IRS. Schedule K-1 shows each partner’s cut of the profits, losses, deductions and credits from the partnership. You will need to report this info on your own return on page 2 of Schedule E.