What Is a 1065 Filer and Who Needs to File?

Businesses must understand their tax obligations. This article explains the Form 1065 filer, detailing who must file and what the form entails.

Defining the 1065 Filer

A “1065 filer” refers to a business entity required to file Form 1065, U.S. Return of Partnership Income, with the Internal Revenue Service (IRS). Partnerships use this form to report their income, gains, losses, deductions, and credits. For tax purposes, a partnership generally involves two or more persons engaged in a trade or business who contribute money, property, labor, or skill, with the expectation of sharing in profits and losses.

This classification includes general partnerships, where all partners share in management and liability. Limited partnerships (LPs) consist of at least one general partner with unlimited liability and one or more limited partners whose liability is typically limited to their investment. Limited liability partnerships (LLPs), often favored by professional groups, offer partners limited liability for the actions of other partners.

Beyond traditional partnerships, a limited liability company (LLC) with two or more members is, by default, treated as a partnership for federal income tax purposes and becomes a 1065 filer. A single-member LLC is typically treated as a disregarded entity and taxed as a sole proprietorship, unless it elects to be taxed as a corporation.

A 1065 filer operates as a “pass-through” entity for tax purposes. The partnership itself does not pay federal income tax. Instead, income, losses, deductions, and credits pass directly through to the individual partners. Each partner reports their share of these items on their personal income tax returns, making them responsible for the tax liability.

Understanding Form 1065 Contents

Form 1065 serves as an informational return for the IRS. While the partnership itself does not pay income tax, this form aggregates financial activity to determine each partner’s share of income, deductions, and credits. The form details the partnership’s gross income, which includes revenue from services, sales, and other routine business operations.

Ordinary business income or loss is calculated by subtracting allowable business expenses from the partnership’s operating revenue. These expenses can include salaries and wages paid, rent, interest payments, and various taxes. The form also requires reporting of other types of income and deductions that are “separately stated,” meaning they retain their character when passed through to partners. These items, such as capital gains or losses, dividend income, and charitable contributions, are not included in the ordinary business income calculation.

Form 1065 includes several schedules. Schedule K summarizes the allocation of various partnership items, including income, deductions, and credits, before they are distributed to individual partners. This schedule ensures that all financial information is categorized appropriately for pass-through. Schedule L presents the partnership’s balance sheet at both the beginning and end of the tax year, detailing assets, liabilities, and partners’ capital.

Schedules M-1 and M-2 reconcile the partnership’s accounting income with its taxable income and analyze partners’ capital accounts, respectively. The form also includes sections for reporting specific deductions, such as Section 179 expense deductions, and other items like guaranteed payments made to partners for services rendered. Guaranteed payments are treated as deductible business expenses for the partnership, reducing its ordinary income.

Tax Implications for Partners

Partners in a 1065 filing entity experience “pass-through taxation,” meaning the partnership’s profits and losses are not taxed at the entity level but pass directly to individual partners. This avoids the double taxation associated with C corporations, where income is taxed at both the corporate and shareholder levels. Each partner reports their share of the partnership’s income or loss on their personal income tax return, typically on Schedule E (Form 1040).

Schedule K-1 (Form 1065) is prepared by the partnership for each individual partner. This form details the partner’s specific share of the partnership’s income, deductions, credits, and other items. The K-1 provides the necessary information for partners to accurately report their portion of the business’s financial activity on their individual tax returns. For example, if a partnership earns $200,000 and a partner has a 30% interest, their Schedule K-1 would report $60,000 as their share of the income.

A partner’s basis in the partnership is impacted by the items reported on Schedule K-1. This basis represents their investment in the partnership and is adjusted annually by their share of income, losses, contributions, and distributions. Basis limits the amount of losses a partner can deduct. Losses can only be deducted up to the partner’s basis and the amount they have “at risk” in the business.

Self-employment tax applies particularly to general partners. Income derived from a partnership by a general partner is generally subject to self-employment taxes, which fund Social Security and Medicare. This tax usually applies to the partner’s distributive share of ordinary business income and any guaranteed payments received for services rendered. Limited partners typically do not pay self-employment tax on their share of partnership income, provided they are not actively involved in the business operations.

Filing Requirements and Deadlines

Form 1065 is a mandatory annual requirement for most domestic partnerships. For calendar-year partnerships, the standard due date for filing Form 1065 with the IRS is March 15th. If this date falls on a weekend or legal holiday, the due date shifts to the next business day.

Partnerships that require additional time to file can request an automatic six-month extension by submitting Form 7004, Application for Automatic Extension of Time To File Certain Business Income Tax, Information, and Other Returns. Filing Form 7004 extends the filing deadline for Form 1065 to September 15th for calendar-year partnerships. An extension to file does not extend the time to pay any taxes due; partners are still responsible for paying their estimated tax liabilities by the original due date.

Partnerships must also provide each partner with their Schedule K-1 (Form 1065). The deadline for providing K-1s to partners is generally March 15th for calendar-year partnerships. If the partnership files an extension for Form 1065, the deadline for issuing K-1s to partners is also extended to September 15th.

Partnerships can file Form 1065 and accompanying schedules electronically through authorized IRS e-file providers. Paper forms can also be mailed to the appropriate IRS mailing address. Accurate and timely submission is important for compliance with federal tax regulations.