Partnership Income Tax Guide
Partnership Tax Forms, Tax Filing Information
U.S. Partnerships and Income Taxes
This guide will take you through the top pieces of information to help you prepare for partnership taxes, including types of partnerships and how they are taxed, when and where to file, which form to use. We'll also look at how the partnership's taxes are transferred to and paid by the partners.
Partnership taxes are complicated, but you can make the process easier, and maybe less costly, by understanding the basics. Read more about Getting Help with Business Taxes.
Partnership Tax Return Due Dates
The due date for income taxes for partnerships and multiple-member LLC's taxed as partnerships is March 15. If March 15 falls on a weekend or holiday, the return is due the next business day. Check this article about business tax due dates for the current year to get the exact date.
In 2021, those affected by winter storms in Texas are automatically eligible to delay filing returns until June 15. This applies to both individual and business taxes, including any business taxes that would otherwise be due March 15, 2021.
You may file your partnership return electronically, but partnerships with more than 100 partners are required to file Form 1065, Schedules K-1, and other related forms and schedules electronically.
What's New With Partnership Income Taxes?
The new (2017) tax law (Tax Cuts and Jobs Act) has multiple changes that may affect your partnership income tax return beginning in 2018 and beyond. Some of the major changes that could affect your partnership are:
- Allowing more small businesses to use the cash accounting method instead of accrual accounting.
- Increased write-offs for depreciating business assets like equipment and vehicles.
- Elimination of tax-loss carrybacks (but net operating losses can still be carried forward to future years)
- Elimination of entertainment expense deductions. Meal expense deductions are still available, most at 50%, but some meal expenses may not be allowed.
New Qualified Business Income Deduction
A new Qualified Business Income Deduction allows partners to take a deduction for up to 20% of their portion of business income, in addition to other normal business deductions. This new deduction has many limits and qualifications so check with your tax professional to see if you qualify. Note that the partnership doesn't get the deduction; it passes through to the partners, based on their share on their individual Schedule K-1.
Partnership Federal Income Tax Forms
Partnerships file their federal income tax returns using Form 1065. Form 1065 is an information return, meaning that no tax is imposed directly on the partnership based on information in Form 1065.
The partnership must also prepare a Schedule K-1 to give to each partner, showing that partner's distribution of the taxable profits or losses of the partnership for that year. The Schedule K-1 is filed with the individual partner's personal income tax return for the year, and the total from the Schedule K-1 is recorded in Line 12 - Business Income. Individual partners pay income taxes on their share of the profits for the partnership.
|Who Files What? Partnerships and Partners|
|Federal Taxes||Pays Tax?|
|Partnership||Form 1065, U.S. Return of Partnership||Information return; doesn't pay income tax|
|Partners||Schedule K-1 information from partnership included on Schedule E of Form 1040||Pays income tax on share of partnership income|
|Self-employment tax (depending on partnership type) calculated on partnership income on Schedule SE||Pays self-employment tax on share of partnership income|
Information and Documents Needed for Partnership Tax Return
To file your partnership income taxes, you will need to provide some financial reports and other documents to your tax preparer. These documents include:
- A balance sheet for the beginning of the partnership's fiscal year and the end of that year,
- A profit and loss statement for the end of the year, and
- Information to calculate the cost of goods sold.
Here is a list of the documents needed to prepare a partnership income tax return.
Filing an Extension for Partnership Income Taxes
To file an application to extend your partnership tax return, you must use Form 7004. This form must be filed by March 15, and taxes (estimated) must be paid by that date. You have six months to file the return, which is due September 15. If you were affected by winter storms in Texas in 2021, you do not need to file an application to extend—as long as you file your taxes by June 15. If you want to delay filing until September 15, you will need to request an extension.
If you file an extension, you must still pay the income tax by the original due date; payment is not extended.
Filing an Amended Partnership Tax Return
To file an amended partnership return, make a copy of the partnership return Form 1065 and check the box G(5) on page 1. Attach a statement with details on what is being changed. If the Schedule K-1 (partner or LLC member statement) is incorrect, check the "Amended K-1" box on the top of the Schedule K-1 to indicate that it has been amended.
Estimated Taxes for Partners in Partnerships
The partnership pays no income tax, so it doesn't pay estimated taxes. Partners may have to pay estimated taxes if they expect to owe $1,000 or more in taxes when their return is filed. Quarterly estimated tax due dates are April 15, June 15, September 15, and January 15 of the following year. You may pay estimated taxes by check (with a voucher) or by direct pay.
As with filing tax returns, those affected by winter storms in Texas in 2021 may delay paying quarterly estimated taxes until June 15, 2021.
State Partnership Taxes
Partners must pay income taxes on their distribution of profit in a partnership in the state or states where the partnership is located. Partnership taxes are paid on the individual partner's personal state tax returns.
Don't Forget Self-Employment Taxes
General partners in a partnership are not considered employees but are self-employed. Your income as a partner may be subject to self-employment taxes(Social Security and Medicare taxes), based on your partnership type. General partners usually pay self-employment tax on their earnings (with some exceptions), but a limited partner's share of partnership income isn't subject to self-employment taxes, (there are exceptions here too).
If you must pay self-employment tax, you must prepare and file a Schedule SE to report your partnership income and calculate the self-employment tax amount. This tax amount is added to your personal tax return. (Read more about partnership income and self-employment taxes.)
Husband-Wife Partnerships as Qualified Joint Ventures
If you and your spouse are the sole owners of a partnership (not an LLC), you may be able to elect qualified joint venture status and file two Schedule C forms instead of filing the partnership tax form. You don't need to file an election to do this, but you must meet certain specific qualifications. Both members must materially participate, there must be no other owners, and you must file a joint tax return.