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

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

Form 1065: U.S. Return of Partnership Income is an Internal Revenue Service (IRS) tax document used to declare the profits, losses, deductions, and credits of a partnership. A partnership doesn't pay income taxes; rather, any profit or loss is passed on to the partners, who are responsible for taxes.

Form 1065 provides the IRS with a snapshot of a company's financial status for the year. The partners must report and pay taxes on their shares of income from the partnership on their individual tax returns and pay income tax on their earnings regardless of whether earnings were distributed. In addition to Form 1065, partnerships must submit Schedule K-1, a document prepared for each partner.

Who Can File Form 1065: U.S. Return of Partnership Income?

All partnerships must file Form 1065: U.S. Return of Partnership Income. This includes a general partnership, a limited partnership, or a limited liability corporation (LLC) classified as a domestic partnership and headquartered in the U.S. The IRS defines a partnership as two or more people carrying a trade or business together.

Partnerships and LLCs are pass-through entities, where any profits or losses pass directly to the partners or LLC members. Individual partners report and pay taxes on their share of the business income on their personal tax returns using Schedule K-1 and then file this form with their personal tax returns, IRS Form 1040. The partnership or LLC then files a single IRS Form 1065, but the business does not pay the income tax.

Foreign partnerships with income in the U.S. must also file Form 1065. However, foreign partnerships earning less than $20,000 in the country or partnerships that receive less than 1% of their income in the U.S. may not have to file.

Nonprofit religious organizations classified as 501(d) also file this form. They must show that profits were given to their members as dividends, regardless of whether they were distributed.

How to File Form 1065

A domestic partnership commonly files Form 1065: U.S. Return of Partnership Income by the 15th day of the third month following the date its tax year ended, usually by March 15th of each year. Businesses commonly submit through online tax filing services or by mail.

Form 1065 requires partnerships to gather important year-end financial statements, including a profit and loss statement that shows net income and revenues, deductible expenses, and a balance sheet for the beginning and end of the year.

The form must include the Employer Identification Number (EIN), or Tax ID, the number of partners in the business, and start dates for the inception of the business. Form 1065 also requires information about the partners and their stake in the company by the percentage of ownership.

Before completing Form 1065, filers will find the information required from the following:

• Form 4562: Depreciation and Amortization
• Form 1125-A: Cost of Goods Sold
• Form 4797: Sales of Business Property
• Copies of any Form 1099 issued by the partnership
• Form 8918: Material Advisor Disclosure Statement
• Form 114: Report of Foreign Bank and Financial Accounts
• Form 3520: Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts

Farming partnerships need a copy of Form 1040 individual tax return as well.

When to File Form 1065

Form 1065 must be filed by the 15th of the third month after the end of a company's tax year. So if the partnership follows the calendar year, it must file Form 1065 by March 15. If the business needs an extension, it must file Form 7004 by the appropriate deadline for its tax year.

When filed by the deadline, the company automatically receives a six-month extension. The IRS won't contact the business with approval, but it will if the extension is denied. Each partner must file Form 7004 unless the company has a common parent or agent, in which case a blanket request can be submitted.

The Bottom Line

Form 1065: U.S. Return of Partnership Income is a tax document issued by the IRS used to declare the profits, losses, deductions, and credits of a business partnership. In addition to Form 1065, partnerships must also submit a Schedule K-1 prepared for each partner.

Form 1065 is due to the IRS by the 15th day of the third month following the date the tax year ended for the business. If your business follows a calendar year, the due date is March 15.