How to File Form 1065 for a Partnership
All the Information You Need for Your LLC or Partnership
Partnerships have specific tax reporting requirements that are different from other businesses. Partnership taxes are a two-step process: The partnership as an entity must report income, gains and losses, and credits and deductions, like other businesses. However, partnerships don't pay taxes on the income. Instead, the partners pay taxes on their share of the partnership income they're paid.
While the partnership pays its partners, the partners aren't employees and don't receive a W-2. Instead, the partnership supplies each partner copies of Schedule K-1 (Form 1065) which reports partners' share of income, credits, and deductions.
Here is more about how partnerships report to the Internal Revenue Service (IRS) and the documents needed to file Federal Income Taxes for a partnership.
Partnership Federal Income Tax Filing
Form 1065 is the U.S. Return of Partnership Income used by partnerships to report each partners' share of income or loss according to the terms of the partnership.
No tax is calculated or paid from Form 1065, and instead, the tax liability is passed through to the members who are given their share through Schedule K-1 and pay taxes on their return.
Multi-Member LLC Filing as Partnership
If your business is an LLC with multiple members, and you have not elected to be taxed as a corporation or S corporation, you'll be filing taxes as a partnership. From the standpoint of the IRS, you are filing your business tax return as a partnership.
Documents to Report Partnership Taxes
To prepare to file Form 1065, you need several year-end financial statements. Give your tax preparer a profit and loss, or income statement showing your partnership net income or loss including the specific sources of revenue, and all deductible expenses of the partnership/LLC for the year, and a balance sheet for the partnership at the beginning and the end of the year. The beginning year balance sheet must match last year's end-of-year balance sheet.
Before you take your partnership tax information to a tax preparer, gather together the following information:
- Information about the partnership, including the Employer ID number, business code (NAICS code), and the date the partnership was started
- Accounting method used by the partnership: cash or accrual. This information is important in figuring out when income and expenses should be recorded.
- Total gross receipts returns and allowances. Allowances include discounts and complimentary (free) products and services.
If you sell products, you need to report information on the value of your inventory at the start of the year, and the cost of inventory purchased during the year to the IRS.
Reporting Expenses of the Partnership
Most business expenses are deductible, so it's important to list every expense, including:
- Salaries and wages of employees, but not partners.
- Guaranteed payments to partners
- Repairs and maintenance expenses
- Taxes, licenses, permits, and fees paid by the partnership, not including federal income tax.
- Interest paid
- Depreciation calculation for the year. Business assets like equipment and vehicles bought during the year need to meet IRS requirements to be depreciated.
- Retirement plans for partners and employees that may reduce income taxes due.
- Employee benefit programs
Expenses on business assets such as equipment, property or vehicles are depreciated over time, versus taking the entire expense the year the asset was acquired.
Information Needed for Schedule K-1
Schedule K-1 provides information about the partnership and the partners, including taxable income of partners from passive and other activities, qualified dividends, net capital gains, and income from other activities.
Before preparing this form, your tax preparer needs a copy of your partnership agreement to provide information on the distributions of shares or money to partners, and allocation of income/loss to partners.
You also need a list of partners and their partnership type (general or limited).
The most important piece of information you need is Information on distributions and contributions by partners for the tax year, including the total amount of all partner capital accounts at the beginning and the end of the year and increases and decreases, including distributions.
Taxes can be complex, especially for business partnerships or multi-member LLCs. To make sure you're properly reporting your partnership's income and losses, as well as taking advantage of all qualified deductions, consider hiring a tax professional to help you with your partnership's tax reporting.
IRS. "About Form 1065, U.S. Return of Partnership Income." Accessed Feb. 6, 2020.
IRS. "About Schedule K-1 (Form 1065), Partner's Share of Income, Deductions, Credits, Etc." Accessed Feb. 6, 2020.
IRS. "Partnerships." Accessed Feb. 6, 2020.
IRS. "LLC Filing as a Corporation or Partnership." Accessed Feb. 6, 2020.