Profits Are Taxed Whether Partners Receive Them or Not.....
The IRS requires each partner to pay income taxes on his "distributive share. if the partners didn't make an agreement. The IRS treats each partner as though he or she received his distributive share each year. This means that you must pay taxes on your share of the partnership's profits -- total sales minus expenses -- regardless of how much money you actually withdraw from the business.
-The practical significance of the IRS rule about distributive shares is that even if partners need to leave profits in the partnership -- for instance, to cover future expenses or expand the business -- each partner will owe income tax on his or her rightful share of that money. (If your business will regularly need to retain profits, you should consider incorporating -- corporations offer some relief from this particular tax bite.