Understanding Form 1065 for Partnerships and LLCs
Form 1065 is an IRS tax form that partnerships and multi-member limited liability companies (LLCs) file to report their income, deductions, gains, losses, etc. It is an informational return that tells the IRS about the business’s finances.
Who Has To File Form 1065?
- Multi-member partnerships
- Multi-member limited liability companies (LLCs)
- Limited partnerships with at least one general partner
- Syndicates
- Groups of individuals working together in a joint venture
- Common trust funds
Single-member LLCs generally do not file Form 1065 and instead report business activity on Schedule C of Form 1040.
Parts of Form 1065
Form 1065 contains the following key sections:
- Heading: Partnership or LLC information
- Part I: Income and Deductions
- Part II: Partners’ Distributive Share
- Part III: Partner’s Share of Current Year Income, Credits, Deductions, etc.
- Schedule K-1 for each partner or member
- Additional schedules as applicable
When To File Form 1065
The due dates for filing Form 1065 are:
- March 15 for calendar year partnerships and LLCs
- 15th day of 3rd month after year-end for fiscal year filers
An automatic 6-month extension can be requested by filing Form 7004 by the original due date.
How To File Form 1065
Form 1065 can be filed either electronically or by paper by the due date. Electronic filing is recommended for faster processing.
All partners and members should receive a Schedule K-1 to report their share of the business’s income or loss on their tax returns.
Key Steps To Prepare Form 1065
Follow these steps to prepare Form 1065:
- Determine accounting method (cash or accrual)
- Select tax year-end date
- Record all business income and expenses
- Complete Form 1065 and the required schedules
- Allocate shares to partners or LLC members
- Distribute Schedule K-1s to partners or members
Form 1065 Tax Filing Penalties
Penalties for not filing or late filing Form 1065 include:
- 5% per month up to 25% of the tax due for failure to file
- $210 per member per month for failure to file K-1s
Accuracy penalties may also apply if incorrect information is reported.
Form 1065 Tax Payment & Estimated Taxes
Partnerships and LLCs typically do not pay income taxes themselves. However, they may need to make quarterly estimated tax payments if they expect to owe $1,000 or more in taxes.
Partners and members pay taxes on their share of the business’s income on their tax returns.
Form 1065 Amended Return
To correct errors on a previously filed Form 1065, file an amended Form 1065X. Generally, amendments must be filed within 3 years after the filing due date.
Form 1065 Audit Risks
Partnerships and LLCs face an increased risk of an IRS exam if they appear to underreport income. Pay close attention to properly reporting all taxable income and following documentation requirements.
State Filing Requirements
Most states require some form of state partnership or LLC income tax return that mirrors federal Form 1065. Applicable state filing fees, taxes, and due dates may differ from federal.
Form 1065s Tax Preparation Tips
Follow these tips when preparing Form 1065:
- Maintain detailed, accurate records to support all partnership or LLC income, expenses, deductions, credits, and partner allocations
- Track partner capital accounts carefully, especially for large or complex partnerships
- Consult a tax professional if you have questions or for complicated tax situations
- File early to avoid last-minute delays or extension requests
- Double-check Schedule K-1 accuracy before distributing to partners or members
