Form 1065 is an information return used to report the income, gains, losses, deductions, credits, etc., from the operation of a partnership.
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.
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.
Ordinary business income (loss). Subtract line 21 from line 8
Tax and Payment
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.
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.
The questions that followed are very detailed and specific to the business. Information regarding the following are asked:
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:
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.
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: