What Is Form 1065: Return of Partnership Income

Form 1065, U.S. Return of Partnership Income, is an informational return filed annually with the Internal Revenue Service (IRS) to report a partnership’s financial activities. It details all income, gains, losses, deductions, and credits. The form does not determine a tax liability for the partnership itself because partnerships are “pass-through” entities.

This means financial results, like profits or losses, are passed directly to the individual partners. Each partner reports their share of the partnership’s income or loss on their personal tax return and pays the associated taxes. Form 1065 summarizes these financial activities before they are allocated among the partners.

Who Must File Form 1065

Nearly all domestic business partnerships must file Form 1065, including general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs). The IRS defines a partnership as two or more persons joining to conduct a trade or business, contributing money, property, or skills, and expecting to share in profits and losses. This filing requirement exists even if the partnership had no income during the year, as long as it was legally active.

Many limited liability companies (LLCs) with at least two members are also required to file Form 1065. By default, the IRS treats a multi-member LLC as a partnership for tax purposes. An LLC can change this classification by filing Form 8832, Entity Classification Election, to be taxed as a corporation.

For partnerships on a calendar year, the deadline to file Form 1065 is March 15. If a partnership uses a different fiscal year, the return is due by the 15th day of the third month after its tax year ends. A six-month extension can be requested by filing Form 7004, which moves the deadline to September 15 for calendar-year filers.

Failure to file on time can lead to significant penalties. For returns filed in 2025, the penalty is $235 per partner for each month the return is late, for up to 12 months. Because the penalty is applied per partner, the total amount can grow quickly.

Information Required to Complete Form 1065

To ensure accuracy, a significant amount of information must be gathered before filling out Form 1065. First, you need the partnership’s identifying details, including its legal name, address, Employer Identification Number (EIN), business start date, and the six-digit Principal Business Activity (PBA) code. The total value of the partnership’s assets at the end of the tax year is also required.

A detailed income statement for the tax year is necessary. This statement must list all income sources, calculate the cost of goods sold if applicable, and itemize all business expenses. Common expense categories include salaries and wages, rent, repairs, bad debts, interest paid on business loans, and taxes and licenses.

Information for each partner is also needed, including their full name, address, and U.S. taxpayer identification number (SSN or EIN). The partnership agreement dictates ownership allocation, so you must know each partner’s percentage share of profit, loss, and capital at the beginning and end of the year.

Finally, you need a record of financial transactions between the partnership and its partners. This includes any cash or property contributed by each partner and all distributions made to them. It also requires an accounting of guaranteed payments, which are amounts paid to a partner for services or the use of capital, determined without regard to the partnership’s income.

Key Schedules Accompanying Form 1065

A complete Form 1065 filing consists of the main form and several accompanying schedules that provide a deeper look into the partnership’s operations. These schedules are integral parts of the return. Schedule B, “Other Information,” is a series of questions about the partnership’s structure and activities, such as its entity type or whether it had foreign financial accounts.

The partnership’s financial position is detailed on Schedule L, the “Balance Sheets per Books,” which shows assets, liabilities, and capital. Two other financial schedules are M-1, which reconciles book income with tax income, and M-2, which tracks changes in partners’ capital accounts.

A partnership is exempt from completing Schedules L, M-1, and M-2 if it meets four criteria:

• Its total receipts were under $250,000.
• Its total assets were under $1 million at year-end.
• It furnishes Schedules K-1 to partners on time.
• It is not required to file Schedule M-3.

The Role of Schedule K-1 for Partners

For an individual partner, the most significant document generated from the Form 1065 filing is the Schedule K-1. This form is prepared by the partnership for each of its members to report their individual share of the partnership’s income, deductions, and credits. The partnership files a copy of each K-1 with the IRS and provides a copy to the partner.

The information on Schedule K-1 is broken down into standardized boxes, each corresponding to a different type of income or deduction. For example, Box 1 reports the partner’s share of ordinary business income or loss, Box 2 details net income or loss from rental real estate, and Box 5 reports interest income. These amounts are calculated based on the partner’s distributive share per the partnership agreement.

Box 4 reports guaranteed payments made to a partner for services or for the use of capital, which are treated as ordinary income. The K-1 also reports a partner’s share of deductions and tax credits that can affect their personal tax liability, such as charitable contributions or investment expenses.

The ultimate destination for the figures on Schedule K-1 is the partner’s own Form 1040, U.S. Individual Income Tax Return. For instance, ordinary business income from Box 1 is reported on Schedule E (Form 1040). The partner is responsible for reporting these amounts correctly and applying any personal limitations, such as basis or at-risk rules that might restrict deductible losses.

Filing Form 1065 and Post-Filing Procedures

Once Form 1065 and its schedules are completed, the final steps involve submission to the IRS and distribution to partners. Partnerships with more than 100 partners are required to file Form 1065 electronically. This requirement also applies to smaller partnerships that file 10 or more returns of any type during the year, such as Forms W-2 and 1099.

After filing with the IRS, the partnership must furnish a copy of Schedule K-1 to each partner. The deadline for providing this form to partners is the same as the Form 1065 filing deadline of March 15 for calendar-year partnerships. This allows partners to receive the information in time to complete their personal tax returns.

Filing a federal return does not necessarily complete a partnership’s annual tax obligations. Most states with an income tax have their own partnership return filing requirements. Partnerships must ensure they comply with all applicable state and local tax laws in addition to their federal duties.