What Is Form 1065: U.S. Return of Partnership Income?

What Is Form 1065: U.S. Return of Partnership Income?

Let me explain Form 1065 to you directly: it's the U.S. Return of Partnership Income, a key IRS tax document that partnerships use to report their financial activities, including profits, losses, deductions, and credits. Remember, partnerships don't pay income taxes themselves; instead, those profits or losses pass through to the individual partners, who handle them on their personal tax returns.

You also need to know that partnerships must submit a Schedule K-1 for each partner along with Form 1065. This gives the IRS a full picture of the partnership's annual financial standings.

Eligibility Criteria for Filing Form 1065

If you're involved in a partnership, you must file Form 1065. This applies to general partnerships, limited partnerships, or limited liability companies (LLCs) classified as domestic partnerships headquartered in the U.S. The IRS defines a partnership as two or more people carrying on a trade or business together.

Partnerships and LLCs are pass-through entities, meaning profits or losses go directly to the partners or members. You, as an individual partner, report and pay taxes on your share using Schedule K-1, which you file with your personal tax return on IRS Form 1040. The partnership itself files just one Form 1065, but it doesn't pay the income tax.

Foreign partnerships with income in the U.S. must file Form 1065 too. However, if a foreign partnership earns less than $20,000 in the U.S. or receives less than 1% of its income there, it may not have to file.

Nonprofit religious organizations classified as 501(d) also file this form. They need to show that profits were given to members as dividends, whether distributed or not.

Important Note on Additional Schedules

Be aware that partnerships may need to file additional schedules with Form 1065, such as Schedules L, M-1, and M-2.

Filing Process for Form 1065

For a domestic partnership, you file Form 1065 by the 15th day of the third month after the tax year ends, which is usually March 15. You can submit it through online tax filing services or by mail.

To complete Form 1065, gather your year-end financial statements, including a profit and loss statement showing net income, revenues, and deductible expenses, plus a balance sheet for the beginning and end of the year.

The form requires the Employer Identification Number (EIN) or Tax ID, the number of partners, the business start date, and details about the partners and their ownership percentages.

Before you fill it out, collect information from forms like Form 4562 for depreciation and amortization, Form 1125-A for cost of goods sold, Form 4797 for sales of business property, copies of any Form 1099 issued by the partnership, Form 8918 for material advisor disclosure, Form 114 for foreign bank accounts, and Form 3520 for foreign trusts and gifts. If it's a farming partnership, you'll need a copy of Form 1040 as well.

Deadlines for Submitting Form 1065

You must file Form 1065 by the 15th of the third month after the end of your company's tax year. For calendar-year partnerships, that's March 15. If you need more time, file Form 7004 by the deadline to get an automatic six-month extension. The IRS won't notify you of approval, but they will if it's denied. Each partner files their own Form 7004 unless there's a common parent or agent handling a blanket request.

What Is the Penalty for Failing to File Form 1065?

If you fail to file Form 1065 on time, including any extension, the partnership faces a late filing penalty. For returns due in 2023, it's $220 per month per partner.

Do I Need to File a 1065 If My Partnership Did Not Have Income?

Yes, every domestic partnership must file Form 1065 unless it had no income and no expenditures treated as deductions or credits for federal tax purposes.

What Is the Difference Between a K-1 and Form 1065?

A K-1 is prepared for each partner, shareholder, or beneficiary, detailing their share. The partnership files Form 1065, which includes the activity from all those K-1s.

The Bottom Line

Form 1065 is a critical IRS document for partnerships to report profits, losses, deductions, and credits. You need it if you're in a domestic partnership, a foreign one with U.S. income, or certain nonprofits. Make sure each partner gets their Schedule K-1 with their share of the financials. File by the 15th day of the third month after your tax year ends—usually March 15—to avoid penalties. Ensure everything is accurate and on time.