Which legal structure allows for tax losses to be deducted against personal income by partners?

In a general partnership, the legal structure allows partners to share profits and losses from the business directly, which can be reflected on their personal income tax returns. This means that any tax losses incurred by the partnership can be passed through to the partners, enabling them to deduct these losses against their other personal income. This structure provides partners with a significant tax advantage, particularly during the early stages of a business when losses may be anticipated.

In contrast, a corporation operates under a separate legal entity status, meaning profits are taxed at the corporate level and any distributions to shareholders may also face taxation. While a sole proprietorship does allow sole owners to deduct losses, it is not a partnership structure. A limited partnership also has different tax implications; while limited partners face restrictions on their involvement in management, general partners can face personal liability, which affects their tax treatment differently.

Thus, in the context of partnerships where partners benefit from deducting losses against personal income, a general partnership is the correct choice.