What is Form 1065
Form 1065, U.S. Return of Partnership Income, is a tax document used to declare the profits, losses, deductions, and credits of a business partnership. In addition to Form 1065, partnerships must also submit Schedule K-1, a document prepared for each partner. Schedule K-1 identifies the percentage share of gains and losses assigned to each partner for the beginning and end of the reporting period. Form 1065 is for informational purposes only.
BREAKING DOWN Form 1065
Form 1065 does not determine how much tax a partnership owes. Instead, it shows the IRS a snapshot of the company's financial status for the year. The partners must report and pay taxes on their share of income from the partnership on their tax returns. Partners must pay income tax on their earnings regardless of whether the earnings were distributed.
All domestic partnerships file the U.S. Return of Partnership Income, form 1065. Limited Liability Corporations (LLCs) classified as domestic partnerships, domiciled in the United States and non-profit religious organizations must submit Form 1065.
The Internal Revenue Service (IRS) defines a partnership as two or more people who carry on a trade or business together. Each person contributes money, skill, labor, or property with the expectation that all partners will reap the economic benefits or share in the losses.
Foreign partnerships with income in the United States must also file Form 1065. As of 2018, foreign partnerships earning less than $20,000 in the United States or those partnerships receiving less than 1% of their income in the United States may not have to file.
Non-profit religious organizations must report their income and losses on this form. These organizations must show that profits were given to their members as dividends, regardless of if the dividends were distributed.
Form 1065 Requirements
Form 1065 requires significant information about the partnership's annual financial status. Income information includes gross receipts or sales. Deductions and operating expenses, such as rent, employee wages, bad debts, interest on business loans, and other costs are also included. The form requires information about the partners and their stake in the company by percentage of ownership.
Before completing Form 1065, filers need information from
- Form 4562, Depreciation and Amortization
- 1125-A, Cost of Goods Sold
- 4797, Sale of Business Property
- Copies of any form 1099 issued by the partnership
- Form 8893, Election of Partnership Level Tax Treatment
- Form 8918, Material Advisor Disclosure Statement
- Form 114 Report of Foreign Bank and Financial Accounts Disclosure Statement
- Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
- Form 3520, Annual Return to Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts
Farming partnerships need a copy of Form 1040 as well.