What Is Form 1065: U.S. Return of Partnership Income?
Understand the role of Form 1065, the informational tax return that details a partnership's finances and passes income and deductions to its partners.
Form 1065, U.S. Return of Partnership Income, is an informational tax return filed with the IRS by domestic partnerships to report their financial activity. This includes income, deductions, gains, and losses. The partnership itself does not pay income tax on its profits. Instead, the business “passes through” all profits or losses to its partners, who then report this information and pay the taxes on their personal returns.
Who Must File Form 1065
For federal tax purposes, a partnership is the relationship between two or more persons who join to carry on a trade or business. Each member contributes money, property, labor, or skill with the expectation of sharing in profits and losses. Several business structures are required to file Form 1065, including general partnerships, limited partnerships (LPs), and limited liability partnerships (LLPs).
A multi-member limited liability company (LLC) must also file Form 1065, as this is its default tax classification. An LLC can avoid this requirement by formally electing to be taxed as a corporation by filing Form 8832, Entity Classification Election. Foreign partnerships that generate gross income from U.S. sources must also file. This requirement exists even if the partnership had no net income, as long as it received income or incurred expenses.
Information Required for Form 1065
The partnership must gather basic identifying details, including its legal name, business address, Employer Identification Number (EIN), and business start date. You will also need the six-digit principal business activity code that describes your primary product or service.
The return requires detailed financial data, including gross receipts or sales and the cost of goods sold, which is calculated on Form 1125-A. A comprehensive list of all business deductions is also needed. Common deductions include:
- Salaries and wages paid to employees
- Guaranteed payments to partners
- Rent
- Business interest expense
- Taxes and licenses
- Depreciation, calculated on Form 4562
Most partnerships must also complete a balance sheet on Schedule L, reporting assets, liabilities, and partners’ capital accounts at the beginning and end of the tax year. To properly allocate earnings, detailed information for each partner is necessary, including their name, address, Social Security Number or EIN, and their specific ownership percentages for profit, loss, and capital. Details of each partner’s capital account, including contributions and withdrawals for the year, are tracked on Schedule M-2. This data is used to complete Schedule K, a summary of all partners’ shares, and the individual Schedule K-1 for each partner.
The Filing Process and Associated Forms
For partnerships on a calendar year, the due date is the 15th day of the third month after the tax year ends, which is March 17, 2025, for the 2024 tax year. If the business uses a different fiscal year, the return is due by the 15th day of the third month after its year-end. A partnership can file Form 7004 for an automatic six-month extension, moving the deadline to September 15 for calendar-year filers.
Partnerships can mail a paper copy or file electronically. However, electronic filing is mandatory for partnerships with over 100 partners. It is also required for those that file 10 or more returns of any type in aggregate during the calendar year, including W-2s and 1099s. Schedule K-1 must be distributed to each partner by the same deadline the partnership has for filing Form 1065 with the IRS.
Failure to meet these deadlines can result in penalties. For returns due in 2025, the IRS imposes a penalty of $220 per month the Form 1065 is late, multiplied by the number of partners. A separate penalty of $290 applies for each failure to provide a Schedule K-1 to a partner on time.
How Partners Use Schedule K-1
Schedule K-1 is the document that connects the partnership’s tax return to the individual partner’s tax return. It details each partner’s specific share of the business’s financial results for the year, including their portion of income, deductions, and credits. The amounts on the K-1 reflect the partner’s ownership stake and the partnership agreement.
Upon receiving their Schedule K-1, partners use the information to complete their personal income tax returns. The figures from the K-1 are reported on Schedule E (Form 1040), Supplemental Income and Loss. A partner is responsible for paying tax on their share of the income, regardless of whether they received a cash distribution from the business during the year.