As a business, you have the option of one of many different business structures. The default for unincorporated businesses with more than one owner is a partnership.
Partnerships are pass-through entities, meaning they report their adjusted gross income, tax deductions and credits to partners to report on their personal tax returns. But the partnership still files its own return for information purposes, Form 1065.
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What is Form 1065?
Form 1065, U.S. Return of Partnership Income is used to help report a gain or loss in partnership business on each partners’ Schedule K-1.
How is IRS Form 1065 is Used?
IRS Form 1065 is five pages long. Here’s a summary of each page.
Page one of the IRS Form 1065 should include:
Basic information – your partnership’s name, address, employer identification number, business activity, date that the business started
Whether the return is special (i.e. initial return, final return, amended return, etc.)
Method of accounting
The number of Schedules K-1 attached
Page one of the 1065 form also includes a section where you list all income, deductions, tax liability, and payments coming from your partnership’s trade or business, such as:
Income generated from business assets
The bottom of page one of the 1065 tax form has an area where any partner can enter their signature.
Pages Two and Three:
Pages two and three lists Schedule B, Other Information. You’ll answer a list of yes or no questions regarding specific situations. These two pages are also used to provide information about someone designated by the partnership to sign the return and interface with the IRS on matters concerning the return and whether the partnership is opting out of the new centralized audit rules.
Page four of the Form 1065 lists Schedule K, the partners’ distributive share of items. It has sections for:
Income and losses
Alternative minimum tax items
Page five of the Form 1065 has an analysis of net income or loss that breaks down the business’ income or loss.
It also divides the income or loss among general partners and limited partners and by the type of partner.
There are two schedules listed on page five, the Schedule L and Schedule M-1.
Schedule L is a balance sheet for assets and liabilities of the partnership.
Schedule M-1 shows reconciliation of income or loss with information reported on the partnership’s books. This will show you the difference between book and tax accounting since the two are often different.
Schedule M-2 is an analysis of the partners’ capital accounts.
The partnership also might be required to file Schedule M-3, if certain requirements are met. See the Instructions for Form 1065 for more information.
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