A joint undertaking merely to share expenses or share ownership of property, does not necessarily constitute a partnership. A partnership has its own legal status. Partnership income and expenses flow through to the individual partners. Income is taxed to the partner whether or not it is actually distributed. Pass-through items retain the same character in the hands of the partner as they had in the hands of the partnership.
Losses flow through to partners.
Recognition of loss by a partner is limited by the partner's basis, at-risk rules and passive activity rules. Shareholders who perform services for the corporation, including officers, are treated as employees. Wages of corporate employees are subject to payroll tax and withholding. Capital losses are allowed only to the extent of capital gains. Net operating loss of a corporation may be carried over against corporate income, but is not directly passed through to shareholders.