IRS Form 1065 is the U.S. Return of Partnership Income. Partnerships in the United States—including limited partnerships (LP), limited liability partnerships (LLP), and general partnerships—must file Form 1065 annually to report the business’s income, deductions, gains, and losses. Although the partnership itself doesn’t pay federal income tax, this form is critical because it passes the tax obligation to the individual partners via Schedule K-1.
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Who Needs to File Form 1065?
Any domestic partnership or foreign partnership with income effectively connected with a U.S. trade or business must file Form 1065. This includes:
- General partnerships
- Limited partnerships (LPs)
- Limited liability partnerships (LLPs)
- Multi-member LLCs treated as partnerships
When is Form 1065 Due?
The due date for Form 1065 is the 15th day of the third month after the end of the partnership’s tax year. For calendar-year partnerships, this is March 15. An automatic six-month extension can be requested using Form 7004.
Key Sections of Form 1065
Let’s go through each section in detail:
1. Basic Information (Page 1)
This section includes the partnership’s name, address, EIN, business code, and accounting method. You must also indicate the type of return and the principal business activity.
2. Income (Lines 1–8)
- Line 1a: Gross receipts or sales
- Line 2: Cost of goods sold (requires Schedule A)
- Line 3: Gross profit
- Line 6: Other income (e.g., rental income, interest, capital gains)
3. Deductions (Lines 9–21)
This includes all allowable business deductions such as:
- Salaries and wages
- Rent and lease expenses
- Depreciation (requires Form 4562)
- Interest, taxes, utilities
- Employee benefit programs
4. Tax and Payments (Lines 22–25)
Most partnerships do not pay income tax, but if the partnership has nonresident partners or is subject to other taxes (e.g., built-in gains), additional forms like 8804/8805 may apply.
5. Analysis of Net Income (Line 22)
This shows the total income or loss, which is then allocated to partners on Schedule K and Schedule K-1.
Schedule B – Other Information
This part asks questions related to ownership, foreign interests, type of partnership, and filing requirements. It determines whether additional forms (like 5471 or 8865) are needed.
Schedule K – Partner Distributive Share Items
Schedule K reports items that must be separately stated and passed through to the partners, such as:
- Ordinary business income or loss
- Rental income
- Interest and dividends
- Capital gains
- Section 179 deduction
- Foreign transactions
- Credits and other tax preferences
Schedule L – Balance Sheet per Books
This section requires a beginning and ending balance sheet, consistent with the partnership’s books and records.
Schedule M-1 and M-2
- Schedule M-1: Reconciles book income with tax income
- Schedule M-2: Analyzes the partners’ capital accounts
Schedule K-1 – Issued to Each Partner
Each partner receives a Schedule K-1 showing their share of the partnership’s income, deductions, credits, and other relevant items. Partners must use the K-1 when filing their own individual or corporate tax returns.
Additional Forms to Consider
Depending on the business activities, partnerships may also need to file:
- Form 4562 – Depreciation
- Form 4797 – Sales of Business Property
- Form 6252 – Installment Sales
- Form 1125-A – Cost of Goods Sold
- Form 1125-E – Compensation of Officers
- Form 5471 or 8865 – Foreign ownership or interests
Common Filing Mistakes
- Omitting or misreporting partner percentages
- Failing to issue K-1s to partners
- Errors in balance sheet reporting (Schedule L)
- Not reconciling book and tax income
- Incorrect or inconsistent accounting methods
How PEAK Business Consultancy Services Can Help
PEAK Business Consultancy Services offers expert preparation of IRS Form 1065 and related schedules. Our India-based team supports U.S. CPA firms with everything from data collection to final review, helping them reduce turnaround time and improve client satisfaction. Click here to learn more about our 1065 outsourcing solutions.
Why U.S. CPA Firms Choose PEAK
- Accurate and timely preparation of Form 1065
- In-depth knowledge of U.S. tax codes and IRS compliance
- Strong track record with CPA firms across various states
- Transparent communication and seamless workflow tools
- Affordable pricing and scalable workforce
Conclusion
Filing Form 1065 is a critical compliance step for partnerships. While the form itself doesn’t result in tax being paid by the entity, the accurate allocation and reporting of income, deductions, and credits affect each partner’s individual or corporate tax return.
Partner with PEAK Business Consultancy Services to ensure that your 1065 returns are filed accurately, timely, and efficiently. We bring years of experience, dedicated tax professionals, and a commitment to helping U.S. CPA firms grow their practice. Contact us today to discuss your requirements.
