FORM 1065 Overview
FORM 1065 is a U.S. Return of Partnership Income that entities such as partnerships and certain LLCs use to report their financial activities to the Internal Revenue Service (IRS). This form does not result in a tax bill for the entity itself, as partnerships are generally not taxable. Instead, income and expenses are passed through to the partners or members, who report their individual shares on their personal tax returns.
Detailed Explanation
Partnerships must file FORM 1065 annually, including detailed schedules that illustrate the financial positions and operations of the business. Along with FORM 1065, partnerships provide each partner with a Schedule K-1, which outlines their share of the partnership’s income, deductions, credits, and other relevant items.
Key Sections
- Income: Gross income from business activities.
- Deductions: Various allowable expenses such as salaries, interest, rent, repairs, and other operational costs.
- Analysis of Net Income (Loss): Summary of total income and total deductions leading to net income or loss.
- Balance Sheets: Financial positions at the beginning and end of the tax year.
Example Use Case
The ABC Partnership owns an apartment complex and earns rental income. To remain compliant with tax regulations, they filed FORM 1065 detailing their annual income and expenses. Each partner received a Schedule K-1 indicating their share of the partnership’s financial items, which they each reported on their personal Form 1040 returns.
Frequently Asked Questions (FAQ)
What is the purpose of FORM 1065?
FORM 1065 is used by partnerships to report their total income and deductions, which are then divided among the partners according to their partnership agreement. This ensures all partners are individually responsible for reporting their shares on personal tax returns.
Who needs to file FORM 1065?
Any domestic or foreign partnership and certain other entities required by law that receive income must file FORM 1065. This applies even if the partnership had no income during the year.
What is Schedule K-1?
Schedule K-1 is a form issued to each partner that reports their share of the partnership’s income, losses, credits, and deductions. This information must be included on individual income tax returns.
When is FORM 1065 due?
FORM 1065 is generally due by March 15th of each year for the preceding tax year. If the due date falls on a weekend or holiday, it’s due the following business day.
What happens if FORM 1065 is filed late?
The partnership may face penalties for late filing unless a valid reason is provided, or Form 7004 is submitted to request an extension of time to file.
Related Terms and Definitions
- Schedule K-1: A document provided to partners, detailing their share of the income, deductions, and credits from a partnership, which must be reported on individual tax returns.
- Pass-Through Entities: Business structures like partnerships and S corporations where income, losses, and credits pass through to owners’ individual tax returns, avoiding double taxation.
- Form 1040: The standard individual income tax return used in the United States.
Online Resources
- IRS Official Page on FORM 1065: IRS FORM 1065
- TurboTax Guide to Form 1065: TurboTax Guide
- H&R Block Information on Form 1065: H&R Block Guide
References
- Internal Revenue Service (IRS) - “About FORM 1065,” www.irs.gov.
- H&R Block - “Restaurants Guide on FORM 1065,” hrblock.com.
- TurboTax - “How to File FORM 1065,” turbotax.intuit.com.
Suggested Books for Further Study
- “Federal Income Taxation of Partners and Partnerships” by Stephen R. Donohoe
- “Mastering Partnership Taxation” by Philip J. Harmelink and James R. Hasselback
- “The Logic of Subchapter K, a Conceptual Guide to the Taxation of Partnerships” by Laura E. Cunningham and Noël B. Cunningham
