Form 1065 (US Return of Partnership Income)
An information return, not a tax bill: the partnership computes its results, then passes every item to partners, who pay the tax on their own returns.
Detailed Explanation
Form 1065 is informational, as the partnership itself does not pay federal income tax. Instead, the partnership issues each partner a Schedule K-1 reporting their distributive share of income, deductions, credits, and other tax items. Partners then report this income on their own returns. Partnership returns are due March 15, with a six-month extension available. New partnership audit rules under the BBA (Bipartisan Budget Act) require a Partnership Representative and may impose entity-level tax on adjustments.
Key Points
- Informational return; the partnership pays no federal income tax, partners do.
- Filed by partnerships and multi-member LLCs taxed as partnerships; each partner receives a Schedule K-1.
- Due March 15 for calendar-year filers; six-month extension to September 15 via Form 7004.
- Each partner is taxed on their distributive share whether or not cash was distributed.
- BBA centralized audit rules require naming a Partnership Representative and can impose tax at the entity level.
Practical Example
A two-person consulting LLC earns $300,000 and splits profits 50/50. It files Form 1065 by March 15 and issues each partner a K-1 reporting $150,000 of ordinary business income. Even if the LLC retained $60,000 for working capital and distributed only $240,000, each partner reports their full $150,000 share on Schedule E and pays self-employment tax on their share.
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Learn about Business Tax PreparationRelated Terms
Form 1120-S (S Corporation Income Tax Return)
The return through which an S corporation reports its results without paying entity-level tax, allocating each item to shareholders on Schedule K-1 instead.
Schedule K-1
A tax document issued by partnerships, S corporations, estates, and trusts to report each owner's share of income, deductions, credits, and other tax items.
Partnership
A business entity owned by two or more persons who share in profits and losses, taxed as a pass-through with each partner reporting their share on their individual return.
Pass-Through Entity
A business entity that does not pay federal income tax at the entity level; instead, profits and losses pass through to owners who report them on their individual returns.
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