IRS Form 1065
Form 1065, also known as the U.S. Return of Partnership Income, is an informational tax form used to report the income, gains, losses, deductions, credits, and other applicable information concerning the operations of a partnership.
The 1065 tax form is filed on an annual basis, but no taxes are calculated or paid from this form. Instead, taxes are paid by the partners of LLC members, who calculate their share of the business’s income and losses using Schedule K-1 and then file and pay said share with their personal tax returns.
Of all the financial responsibilities you have as a business owner, organizing, filing, and paying your taxes is crucial, but, unfortunately, can be tedious and time-consuming. Part of what makes business taxes so complicated is the variety of different forms that are required for your personal and business return, the specific time frames and requirements of each form, and, of course, the fact that a significant factor contributing to your business’s tax responsibility is your entity type.
As you probably know, the tax requirements for a sole proprietorship or partnership are different from those of a C- or S-corporation. This being said, if your business is a partnership or LLC, one of the most important annual tax forms you must complete is IRS Form 1065. Known as the U.S. Return of Partnership Income, tax form 1065 is an essential return to complete to report your business information to the IRS.
What exactly is IRS Form 1065? Who needs to file this form—and what does the process look like? This 1065 tax form guide is here to help. We’ll answer these questions, provide step-by-step Form 1065 instructions, and explain everything you need to know about this IRS business form.
What Is IRS Form 1065?
IRS Form 1065 is an informational tax return filed annually to report the income, gains, losses, deductions, and credits from the operation of a partnership. Form 1065 must be submitted to the IRS on an annual basis, but taxes are not actually paid with this particular form. This being said, because partnerships and LLCs are pass-through entities, profits and losses pass through directly to the partners or LLC members—and therefore, partners and LLC members report and pay taxes on their share of the business income on their personal tax returns.
So, although a partnership or LLC must file a single IRS Form 1065, the business itself does not pay tax on its income. Instead, the individual and LLC members complete a Schedule K-1 to report their share of the business’s profits and losses and then file this form with their personal tax return.
Who Needs to File IRS Form 1065
As we’ve mentioned, IRS Form 1065 is a business entity-specific tax form. Therefore, Form 1065 needs to be completed on an annual basis by:
- Domestic partnerships: defined by the IRS as “the relationship between two or more persons who join to carry on a trade or business, with each person contributing money, property, labor, or skill and each expecting to share in the profits and losses of the business whether or not a formal partnership agreement is made.”
- LLCs classified as partnerships for tax purposes (meaning you have not filed Form 2553 to be treated as a corporation)
- 501(d) nonprofit religious or apostolic organizations
- Foreign partnerships that had gross income derived from sources in the U.S.
Once again, the partnership or LLC only needs to file one 1065 tax form on behalf of the business. Each partner or LLC member, however, is responsible for including their partnership items on their tax and information returns—by completing Schedule K-1 and filing this form with any applicable returns such as Form 1040, Form 1040-ES, Form 1040-SE, and Form 1040 Schedule E.
Where to Find Form 1065 and How to File
If your business falls into one of the above categories and you need to complete IRS Form 1065, you’ll first want to know where to find it and how to file it.
You can find the 1065 tax form on the IRS website. From there, you can complete the form online or download the form and print it to complete it by hand. Additionally, you can go to the IRS order form site to place an order for Form 1065 and have it mailed to you.
In order to file tax form 1065, you can use the IRS e-file system or you can file the form by mailing it to the applicable IRS address, which varies depending on the state where your business is located. It’s important to note, however, that if your partnership has more than 100 partners, you’re required to file Form 1065 online. The specific guidelines regarding where to file can be found in the IRS Form 1065 instructions document.
Moreover, if you use accounting or tax software, you may be able to complete and file tax form 1065 using this system as well.
All of this being said, as an annual informational tax return, Form 1065 must be filed by the 15th day of the third month following the date the tax year ended, as shown at the top of the form. This means that if you’re filing IRS Form 1065 for the 2019 tax year, the deadline to file would be March 15, 2020. If, however, the due date falls on a Saturday, Sunday, or legal holiday, you’ll have to file by the next day that is not a Saturday, Sunday, or legal holiday.
Form 1065 Instructions
Now that we’ve covered the essential information you need to know with regard to IRS Form 1065, let’s get into the details of how to fill out this return. On the whole, tax form 1065 is a five-page document that will require information from a variety of business financial documents and possibly other IRS forms, in order to complete it. With this in mind, let’s break down our step-by-step Form 1065 instructions:
Step 1: Gather relevant financial documents and IRS forms.
As we’ve mentioned, IRS Form 1065 is a rather involved document, as it requires pieces of information from a number of different locations in order to complete it. Therefore, the first step you’ll want to take to complete this form is to gather all of these documents ahead of time.
Here’s a list of some of the documents, information, and IRS forms you may need to include. It’s worth noting that your business may not need information from all of these forms, it all depends on the specifics of your operations. You may also need additional information.
- Profit and loss statement
- Balance sheet
- Deductible expenses and total gross receipts
- Basic information about the partnership and the partners
- Cost of goods sold (if your business sells physical goods)
- W-2 and W3 forms
- Form 114
- Form 720
- Form 940
- Form 941
- Form 943
- Form 944
- Form 945
- Form 965
- Form 1042 and 1042-S
- Form 1042-T
- Form 1065X
- Form 1095-B and 1094-B
- Form 1095-C and 1094-C
- Form 1096
- Form 1097-BTC
- Form 1098
- Form 1099
- Form 1125-A
- Form 3520
- Form 4562
- Form 4797
- Form 5471
- Form 5713
- Form 8275
- Form 8275-R
- Form 8288 and 8288-A
- Form 8300
- Form 8308
- Form 8594
- Form 8621
- Form 8697
- Form 8804, 8805, 8813
- Form 8832
- Form 8865
- Form 8866
- Form 8876
- Form 8886
- Form 8918
- Form 8925
- Form 8990
- Form 8992
- Form 8993
- Form 8994
- Form 8999
As you can see, this list is already extensive. Generally, the most important documents you’ll need (and the ones that most businesses need) are those regarding your finances—profit and loss statement, balance sheet, deductible expenses, gross receipts and sales, cost of goods sold, etc.
Additionally, the Form 1065 Instructions doc on the IRS website can give more in-depth information on each of these forms and which ones you might need to complete tax form 1065. Moreover, due to the amount of forms, information, and financial data involved in this process, we’d strongly recommend using an accounting or tax software as well as working with a business accountant or tax advisor for assistance completing IRS Form 1065 (or any business tax form, for that matter).
Step 2: Fill in IRS Form 1065 A-J.
Once you’ve gathered all of the information you need for the 1065 tax form, you’ll be ready to actually start filling out the document. As we mentioned, you have the option to fill in this form online, or fill it out by hand. This being said, the first section you’ll need to complete is, in essence, the general information section. These boxes, lettered A through J, are found at the very top of the first page of Form 1065, as seen below:
In this section, you’ll fill in:
- The tax year you’re filing for
- The name of your partnership and mailing address
- A-C: To find your principal business activity, principal product or service, and business code number, you’ll refer to the list at the bottom of the Form 1065 instructions document. As an example, if you fall under the category of “Paper and Paper Products” under “Merchant Wholesalers, Nondurable Goods.” You’d put “Merchant Wholesalers, Nondurable Goods” in box A, “Paper and Paper Products” in box B, and the corresponding code, 424100, would go in box C.
- D: Fill in your employer identification number (EIN) also called business tax ID number.
- E: Fill in the date your business started.
- F: Fill in the total assets of your partnership at the end of the year, as determined by the accounting method you use to keep your books.
- G and H: You’ll indicate what type of return this is and what kind of accounting method your business uses.
- I: Every partner or LLC member must complete a Schedule K-1 and therefore, in this box, you’ll indicate how many you’ll be attaching to this form.
- J: In certain situations, you’ll need to complete a Schedule C or M-3, if this is the case for your business, you’ll check that those forms are attached in this section.
Step 3: Fill in the remainder of IRS Form 1065 page 1.
After you’ve completed the basic information section at the top of page 1, you can continue to complete the remainder of the boxes on this page. These boxes are numbered 1-30 and broken up into three categories: Income, Deductions, and Tax and Payment. In order to complete these sections, you’ll need to refer to your financial and other tax documents to fill in the appropriate numbers—for some of the boxes, the line item will refer you to a specific form or document where you can find the information needed.
This being said, as you can see in the screenshot below, you’ll need to complete the following:
- Boxes 1-7: In order to record your total income in box 8
- Boxes 9-20: In order to record your total deductions in box 21
- Box 22: Subtract box 21 from box 8 to fill in your ordinary business income loss
- Box 23-26: To record your total balance due in box 27
- Box 28: To record any prepayments you’ve made for taxes applicable to boxes 23-26
- Box 29: Amount owed if box 28 is smaller than box 27
- Box 30: Overpayment of box 28 is larger than box 27
Finally, at the end of tax form 1065 page 1, you’ll sign and date the form once it has been completed and reviewed in its entirety. If you had a preparer, like a CPA or enrolled agent complete the form on behalf of your business, you’ll have that professional fill in the box below, that says, “paid preparer use only.” Additionally, if you authorize the IRS to contact that professional about this return, you’ll check yes in the box to the right; if not, you’ll check no.
Step 4: Fill in IRS Form 1065 Schedule B (page 2).
The next page you’ll need to complete for Form 1065 is called Schedule B. This page is divided into numbers 1-10 and continues onto page 3. Schedule B falls under the header of “other information” and asks technical questions about your partnership. To complete this section, you’ll answer yes or no to questions 1-10 as it applies to your business.
The simplest question in this section is question 1, which asks you to indicate your business entity type.
The remainder of the questions, on the other hand, are very detailed and specific, asking for information regarding:
- Ownership percentages of the partnership
- Partnership debt
- Partnership involvement in foreign financial accounts
- Partnership investments
The answers to these questions are going to be very specific to your business, and therefore, it will be extremely helpful to have all of your financial information organized and available, and to consult the advice of a CPA or other tax professional. These professionals will be able to help you sort through your data and documents, as well as understand the specifics involved with each of these questions.
Step 5: Complete IRS Form 1065 Schedule B (page 3).
The Schedule B portion of the 1065 tax form continues onto page 3. Like the part of Schedule B on page 2, numbers 11-25 continue to ask specific questions about your small business partnership, requiring you to answer yes or no in the boxes on the right hand side.
Once again, 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.
Question 25 asks if the partnership is electing out of the centralized partnership audit regime under 6221 (b). If the answer is yes, you must complete Schedule B-2. If the answer is no, you’ll fill in the “Designation of the Partnership Representative” below.
Finally, the last question of Schedule B asks if you’re attaching Form 8996 to certify as a Qualified Opportunity Fund. If so, you enter yes and the amount from that form in this section.
Step 6: Complete IRS Form 1065 Schedule K (page 4).
After completing Schedule B, you’ll be able to move on to page 4 of tax form 1065, Schedule K. It’s important to note that Schedule K one is different than Schedule K-1. Schedule K, found on page 4, is a summary schedule of all the partners’ shares of the partnership’s income, credits, deductions, etc. Schedule K-1, on the other hand, shows each partner’s separate share—and a copy of each partner’s Schedule K-1 should be submitted with Form 1065.
With this distinction established, then, in order to complete the Schedule K, you’ll 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.
To complete the tax form 1065 Schedule K, you’ll have to fill in the first section on the top of page 5. In this section, you’ll use the information from Schedule K on page 4 to analyze the net income by partner type, as shown below.
Step 7: Complete IRS Form 1065 Schedule L (page 5).
Once you’ve completed Form 1065 Schedule K, you’ll need to continue on to the rest of page 5 and fill out Schedule L. According to the IRS’s Form 1065 instructions, if you answered yes to question 4 in Schedule B, you’re not required to complete Schedule L, or the remaining Schedules M-1 and M-2.
Nevertheless, Schedule L, or “Balance Sheet per Books,” is used to prove that the balance sheets agree with the partnership’s books and records. Therefore, in this section, you’ll fill out numbers 1-22 and record your partnership’s assets, liabilities, and capital. If your balance sheet is different than your books and records, you’ll need to attach a statement explaining the discrepancies.
Step 8: Complete IRS Form 1065 Schedule M-1 (page 5).
Next, Schedule M-1 is used to explain any differences between your income as recorded in your bookkeeping and income as indicated in your tax returns. As you can see below, a few factors that might contribute to these changes are tax-exempt interest, guaranteed payments, and depreciation.
Once again, if your partnership responded “yes” to question 4 in Schedule B, you will not need to complete this section.
Step 9: Complete IRS Form 1065 Schedule M-2 (page 5).
Finally, the last section of the 1065 tax form that some of you will need to fill out is Schedule M-2. Schedule M-2 is used to show the changes in the partners’ capital accounts (aka the partnerships’ equity) as shown on the business’s bookkeeping and records. These amounts should equal the total of the amounts reported in item L of all of the partners’ Schedules K-1.
Additionally, just like Schedule L and M-1, if your partnership responded “yes” in Schedule B question 4, you do not need to complete this section.
Step 10: Review Form 1065 and file with the IRS.
Once you’ve filled in all five pages, you’ve completed IRS Form 1065. You’ll want to make sure you review the document thoroughly, preferably working with a certified public accountant, enrolled agent, or other tax professional, in order to ensure that everything is completed wholly and accurately. After you’ve confirmed that the form is completed correctly, you (or your paid preparer) can return to the bottom of page 1 to sign and date the document.
The last step you’ll need to take, then, is to file Form 1065 with the IRS. As we explained above, you can submit this form online or by mail—and you must do so by the 15th day of the third month following the date the tax year ended.
Additionally, it’s important to remember that unlike some other business tax forms, Form 1065 is more than likely going to require several other forms to be submitted alongside of it. You’ll need to submit:
- 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.
Of course, you’ll need to file each partner or LLC member’s Schedule K-1 with the overall 1065 tax form for the partnership.
1065 Tax Form: Points to Remember
Of all the tax forms your partnerships or LLC may be responsible for completing on an annual basis, there’s no doubt that IRS Form 1065 may be one of the most involved. With this informational tax return, there are a number of moving parts—requiring information from your financial statements, other tax forms, and individual partners in order to complete it and file with the IRS.
Keeping all of this in mind, here are a few important points to remember with regard to IRS Form 1065:
- It is an informational tax form used to report the income, gains, losses, deductions and credits of a partnership or LLC, but no taxes are calculated or paid from this form.
- It is filed annually, by the 15th of the third month of the following tax year, and can be filed online or by mail.
- It requires a variety of financial documents and additional tax forms to complete.
- Only one Form 1065 is required per partnership or LLC, but each member of the entity must complete their own Schedule K-1 to file with the 1065 tax form, as well as their personal tax returns.
Therefore, one of the best actions you can take for your partnership or LLC is to invest in business accounting software, tax software, and the assistance of a tax professional. With all of the very specific financial data required to answer the questions within Form 1065, you’ll greatly benefit from using a software to organize your information—as well as a professional with relevant experience who can guide you through this complicated process.