What Is a Partnership Tax Return & Who Files One?

A partnership tax return, Form 1065, is an informational document filed with the IRS. It reports a partnership’s financial performance, including income, deductions, gains, and losses for a tax year. Unlike corporations, partnerships do not pay income tax themselves. They function as “pass-through” entities, meaning profits or losses are directly passed through to the individual owners, known as partners. Form 1065 provides the IRS with an overview of the partnership’s financial activities, ensuring proper tracking and taxation of each partner’s share.

Entities Required to File

Various business structures must file a partnership return. This includes general partnerships, where all partners typically share in management and liability, and limited partnerships (LPs), which involve both general and limited partners. Limited liability partnerships (LLPs) also fall under this requirement, offering limited liability to all partners. Multi-member limited liability companies (LLCs) that have not elected to be taxed as a corporation or an S corporation are typically taxed as partnerships by default and must file Form 1065.

The general rule is that any business with two or more owners that is not classified as a corporation or an S corporation will typically file as a partnership. This includes domestic partnerships and certain foreign partnerships with income generated in the U.S.

Information Reported

Form 1065 requires the compilation of financial and operational data. Businesses must gather information on their gross receipts or sales and the cost of goods sold to determine their ordinary business income or loss. This core operational data forms the basis of the partnership’s financial picture.

The form also requires reporting of specific income types, such as guaranteed payments made to partners, rental income and associated expenses, interest income, dividends, and capital gains or losses. Various deductions incurred by the partnership, including salaries and wages paid, repair expenses, rent, taxes and licenses, interest expense, and depreciation, are also itemized. The partnership’s balance sheet information, detailing assets, liabilities, and partners’ capital accounts, must also be included. This comprehensive reporting ensures the IRS has a complete financial snapshot of the entity for the tax year.

Understanding Partner Allocations

Partnerships use “flow-through” taxation, where the partnership’s income, gains, losses, deductions, and credits are directly passed through to the individual partners. The partnership itself does not pay income tax; instead, the tax liability shifts to the partners. Each partner is then responsible for reporting their share of these items on their personal income tax returns.

To facilitate this, partnerships prepare a Schedule K-1 for each partner. This document details the partner’s specific share of the partnership’s financial results. Information reported on a Schedule K-1 includes:
Ordinary business income or loss
Guaranteed payments
Net rental real estate income or loss
Investment incomes like interest and dividends
Net short-term and long-term capital gains or losses
Net Section 1231 gains or losses
Self-employment earnings or losses

Partners then use the information provided on their Schedule K-1 to report their portion of the partnership’s income or loss on their individual income tax returns.

Submitting the Return

Once the partnership return, Form 1065, along with all necessary schedules like Schedule K-1s, is prepared, it must be submitted to the IRS. Electronic filing, or e-filing, is the most common and often mandatory method for partnerships. This process typically involves using tax software or an authorized e-file provider to transmit the completed return securely to the IRS.

Alternatively, partnerships can mail a paper return to the IRS. When choosing this method, it is important to use the correct IRS mailing address, which can vary based on the partnership’s location and asset size. Using certified mail is often recommended to provide proof of filing.

For calendar-year partnerships, the filing deadline for Form 1065 is March 15th. If additional time is needed, an automatic six-month extension can be requested by filing Form 7004 by the original due date. This extension pushes the filing deadline to September 15th for calendar-year filers, though it does not extend the time to pay any taxes due.