What is Form 1065?
Form 1065, U.S. Return of Partnership Income, is an informational tax return filed annually to the Internal Revenue Service. The form reports the income, gains, losses, deductions, and credits from the operation of a partnership. It is not actually used to pay taxes, but it still must be submitted to the IRS on an annual basis.
How to fill out Form 1065?
Before filling out Form 1065 other financial and tax documents should be gathered. Tax forms such as W2s, W3s, FUTA tax return, Form 114, Form 720, Form 940, and Form 941 may be necessary as well. The nature of the business will dictate the particular documents that are needed.
Boxes A to J: Basic Information
These boxes will ask for the following information.
- Principal business activity, principal product or service, and business code number.
- Employer Identification Number (EIN).
- Date when the business started.
- Total assets as shown by the books.
- Type of tax return.
- Also check the applicable boxes.
- Accounting method.
- The amount of Schedule K-1s to be attached.
- Returns and allowances
- Cost of goods sold (attach Form 1125-A)
- Gross profit
- Ordinary income (loss) from other partnerships, estates, and trusts
- Net farm profit (loss) (attach Schedule F (Form 1040 or 1040-SR)
- Net gain (loss) from Form 4797, Part II, line 17 (attach Form 4797)
- Other income (loss) (attach statement)
- Total income (loss). Combine lines 3 through 7
- Salaries and wages (other than to partners) (less employment credits)
- Guaranteed payments to partners
- Repairs and maintenance
- Bad debts
- Taxes and licenses
- Depreciation (if required, attach Form 4562)
- Less depreciation reported on Form 1125-A and elsewhere on return
- Depletion (Do not deduct oil and gas depletion.)
- Retirement plans, etc.
- Employee benefit programs
- Other deductions (attach statement)
- Total deductions. Add the amounts shown in the far right column for lines 9 through 20
Ordinary business income (loss). Subtract line 21 from line 8
Tax and Payment
- Interest due under the look-back method—completed long-term contracts (attach Form 8697)
- Interest due under the look-back method—income forecast method (attach Form 8866)
- BBA AAR imputed underpayment
- Other taxes
- Total balance due. Add lines 23 through 26Payment
- Amount owed. If line 28 is smaller than line 27, enter the amount owed
- Overpayment. If line 28 is larger than line 27, enter overpayment
Sign and date the form.
Paid Preparer's Information
If a partner, member, or employee of the partnership completes Form 1065, the paid preparer's space should remain blank. In addition, anyone who prepares Form 1065 but does not charge the partnership should not complete this section.
Generally, anyone who is paid to prepare the partnership return must do the following.
Sign the return in the space provided for the preparer's signature.
- Fill in the other blanks in the "Paid Preparer Use Only" area of the return.
- A paid preparer cannot use a social security number in the "Paid Preparer Use Only" box.
- The paid preparer must use a preparer tax identification number (PTIN).
Give the partnership a copy of the return in addition to the copy to be filed with the IRS.
A paid preparer may sign original or amended returns by rubber stamp, mechanical device, or computer software program.
Schedule B: Other Information
In this section, it’s a series of yes-or-no questions, except for the first one.
- What type of entity is filing this return?
- Check the applicable box.
The questions that followed are very detailed and specific to the business. Information regarding the following are asked:
- Ownership percentages of the partnership
- Partnership debt
- Partnership involvement in foreign financial accounts
- Partnership investments
Schedule B is continued on page 3. Numbers 11 to 25 ask specific questions about the business, answerable by yes or no on the right-hand side.
These questions cover a variety of very particular topics, including:
- Partnership property
- Foreign partners within the partnership
- Tax obligations with regard to forms such as 1099, 5471, 1042, etc.
Schedule K: Partners’ Distributive Share Items
It’s important to note that Schedule K one is different from Schedule K-1.
Fill in boxes 1-20. These boxes are broken up into the following sections:
Boxes 1-11: Complete these boxes to calculate income loss.
Boxes 12-13: Complete these boxes to calculate deductions.
Box 14: Complete these boxes to record net earnings loss from self-employment.
Box 15: Complete to record any applicable credits.
Box 16: Complete to record any foreign transactions.
Box 17: Complete to record alternative minimum tax (AMT) items.
Boxes 18-20: Complete to record additional income and expenses.
Analysis of Net Income (Loss)
Information from Schedule K on page 4 is needed to analyze the net income by partner type.
Schedule L: Balance Sheet per Books
It is important to note that according to Form 1065’s instructions section, if the answer was yes to question 4 in Schedule B, it is not required to complete Schedule L, or the remaining Schedules M-1 and M-2.
Fill out numbers 1-22 and record the partnership’s assets, liabilities, and capital.
Schedule M-1: Reconciliation of Income (Loss) per Books with Income (Loss) per Return
The partnership may be required to file Schedule M-3.
This section allows where any differences between bookkeeping income and tax return income should be explained. M-1 should be filed despite having no differences.
Schedule M-2: Analysis of Partners’ Capital Accounts
This is the part where the IRS should be informed about any changes to the capital accounts. Make sure these amounts equal the total amounts reported on item L.
Where to file Form 1065?
File Form 1065 with the IRS. Submit this form online or by mail—and must be submitted by the 15th day of the third month following the date the tax year ended. It’s important to remember that Form 1065 might require several other forms to be submitted alongside it. Like the following:
- All five pages of tax form 1065
- Form 1040 Schedule F, if required
- Form 8825, if required
- Form 1125-A, if required
- Form 8941, if required
- Any other schedules or forms as indicated based on your completion of Form 1065.