Partnership. The partnership itself is not required to make estimated tax payments. However, for Minnesota tax purposes, a partnership is required to pay quarterly estimated tax if its Minnesota minimum fee is $500 or more or if it has a nonresident partner whose share of the composite income tax is $500 or more. As with the sole proprietorship, individual partners generally will be required to make estimated tax payments if their income tax and self-employment tax will exceed taxes paid through withholding and credits by $1,000 or more. The tax is based on taxable income from all sources, not just the income from the partnership. If the tax is underpaid, a penalty may be imposed on the partner. As with the sole proprietorship, both federal and Minnesota estimates generally will be required. C Corporation. Federal: A C corporation whose estimated tax is expected to be $500 or more is required to make estimated tax payments using the Electronic Federal Tax Payment System (EFTPS). Minnesota: A corporation with an estimated tax of $500 or more must make Minnesota quarterly estimated tax payments. In addition, a C corporation with more than $10,000 in tax liability must make all its tax payments via electronic funds transfer. These payments are filed with the Minnesota Department of Revenue. For both federal and Minnesota purposes, a penalty may be imposed for failure to pay the correct estimated tax on or before its due date. S Corporation. The S corporation is not subject to estimated tax on income which passes through to shareholders. For Minnesota tax purposes, an S corporation is required to pay quarterly estimated tax if its S corporation taxes and minimum fee is $500 or more or if it has a nonresident shareholder whose share of the composite income tax is $500 or more. A penalty may be applied if the estimated taxes are underpaid. Disposition of Ownership Interest Sole Proprietorship. The sole proprietor who sells the business is treated as selling the individual assets of the business. The income tax treatment of the sale will depend on whether or not the property is a capital asset, and the length of time the property has been held. The assets may also be subject to state sales tax. A sole proprietor also may change the form of the business without selling its assets, such as by joining with one or more persons to form a partnership or a corporation, and then transferring the assets of the sole proprietorship to the new organization. The tax consequences of such a transfer should be discussed in advance with a competent tax advisor. Partnership. The sale or exchange of a partner’s interest in a partnership ordinarily results in capital gain or loss on the difference between the amount realized and the adjusted basis of the partner’s interest in the partnership. The partner’s share of partnership debt is taken into account as well. If a partner sells or exchanges the partner’s entire interest in a partnership, the partner generally is treated as if the partner received a cash distribution in an amount equal to the partnership debt allocable to the interest . Special rules apply to exchanges of an interest in one partnership for an interest in another, liquidation of a partner’s interest, and the treatment of unrealized receivables and inventory items. Tangible assets sold as part of the transaction also may be subject to state sales tax. Because of the complexity of the tax laws affecting the disposition of a partnership interest, the tax consequences of such a disposition should be thoroughly explored in advance with a competent tax advisor. Note also that under the Revised Uniform Partnership Act (RUPA), mergers of partnerships are allowed. Again, because of the complexity of tax laws, a competent tax advisor should be consulted when considering a merger of partnerships.
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