IRS Form 1065 – U.S. Return for Partnership

IRS Form 1065 – U.S. Return for Partnership

A partnership must be an association of two or more taxpayers with the objective of making a profit.
A business operated as a partnership is not recognized as a taxable entity under the income tax laws. Instead, the partner divides the income and expenses of the business and report their share on individual returns.
The income taxed to the owners regardless of distributions.

When to File? By the 15th day of the 3rd month following the date its tax year. For calendar-year partnerships, the due date is March 15. For 2019 return it’s March 16, 2020.
Extension for Filing Form 7004 is to request an extension of time to file.
Recordkeeping The partnership must usually keep records that support an item of income, deduction, or credit on the partnership return for 3 years from the date the return is due or is filed, whichever is later.

Below are the parts of Form 1065:

  • Enter the Gross Receipts or sales,
  • Cost of goods sold,
  • Ordinary income (loss) from the other partnerships, estates and trusts,
  • Net farm profit (loss) includes the partnership’s fishing income,
  • Net gain (loss) from the sale, exchange or used the involuntary conversion of assets used in business activity,
  • Interest income in the ordinary course of business,
  • Recoveries of bad debts deducted in prior years,
  • Taxable income from insurance proceeds,
  • Income adjustments resulting from changes in accounting methods.
Deduction (trade or business activity deductions)
  • Enter the Salaries and wages paid or incurred for the tax year,
  • Guaranteed payments are those payments made to partners without regard to partnership income,
  • Repairs and maintenance cost which don’t add to the value of the property,
  • Bad debts mean the  total debts that become worthless in whole or in part during the year,
  • Rent paid on business property used in business activity.
  • Taxes and license in the business activities of the partnership subject to certain conditions,
  • Interest expense in business activity,
  • Depreciation claimed on assets used in business activity,
  • Depletion for timber depletion,
  • The deductible contribution made by the partnership for his common-law employees,
  • Partnership’s contribution to employee benefits programs that aren’t part of a pension, profit-sharing, etc.,
  • Insurance premiums,
  • Legal & professional fees,
  • Supplies used consumed in the business,
  • Utilities,
  • Certain business startup and organization costs
Schedule B It asks “other information” related to the type of entity filing return, ownerships, partnership’s debt, partnership’s interest and many other information.
Schedule K
It shows information of partnership and their partners, like the taxable income of partners, qualified dividend, net capital gains, income from other activities, deduction or loss.
Schedule L Balance Sheet per Books for beginning and end of the Tax year.
Schedule M-1 It’s Reconciliation of Income (Loss) per Books With Income (Loss) per Return. Reconciliation needed as the rules of income tax is different from bookkeeping.
Schedule M-2
It’s an analysis of “Partner Capital Accounts” which includes the opening balance, contribution, income (loss), distribution, other increases or decreases.
Important Points
  • A foreign partnership required to file a return must generally report all of its foreign and U.S. source income.
  • If an entity is an LLC with multiple members, and you have not elected to be taxed as a corporation or S Corporation, it will be filing taxes as a partnership firm.

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