IRS Form 1065, “U.S. Return of Partnership Income,” is a tax form that is used specifically for partnerships to report their financial activities annually to the IRS. Although partnerships do not pay federal income taxes, they are obligated to file this form in order to report income, deductions and other relevant financial data.
Purpose of IRS Form 1065
As with all tax forms, there is a primary reason why a partnership seeks to file Form 1065. In this case, the reason is to summarize partnership income for the IRS so that they have a complete picture of the partnership’s activity. Partnerships are known as “pass-through” entities because the profits and losses are taken by the partners. The designated partners report this income in their individual tax filings.
Form 1065 must be filed by:
- All domestic partnerships
- Foreign partnerships with income effectively connected with U.S. trade or business
- LLCs that have elected to be treated as partnerships for tax purposes
This includes general partnerships and limited partnerships, LPs, and limited liability partnerships, LLPs.
Key Components of Form 1065
- Main Form: Captures gross income, deductions, cost of goods sold, and other relevant financial data.
- Schedule K: Summarizes the overall income, deductions, credits, and other items of the partnership.
- Schedule K-1: Allocates the income, deductions, and credits of the partnership for each individual partner. For tax purposes, each partner receives a K-1 which must be utilized for filing taxes.
Filing Deadlines
The Form 1065 submission deadline is the 15th day of the third month after the end of partnership fiscal year. For most partnerships operating under the calendar year, this is March 15. Extensions are permitted through Form 7004 which extends the deadline via an additional 6 months.
In the event of filing Form 1065 late or failing to timely issue Schedules K-1, the IRS imposes penalties which accrue for each partner, each month. This could prove to become very expensive for larger partnerships.
Conclusion
For partnerships in the United States, submitting Form 1065 is a necessary and essential step within the tax framework. Its primary purpose is to provide accurate reporting of business income and equitable taxation among partners. Compliance and timely submission aid partnerships in avoiding expensive penalties. If you need assistance with Form 1065, contact Dimov Tax for expert assistance.