How To Fill Out Form 1065: Overview and Instructions
Sam and Phillip are the business partners for over 5 years now. Both are aware of each other’s business practices and therefore often rely on each other for completion of the work. But when it comes to paying taxes both are highly alert on their end. Why? It’s simple: taxes are nothing to be taken lightly. In the light of their partnership, now is the time that they both have to file for the taxes and fill the Form 1065.
Being partners in their small leather jacket manufacturing they are in lieu of the agreement already. Therefore the IRS Form 1065 is about the U.S. Return of Partnership Income.
But if you’ve recently entered the business world and do not have the nominal information about Form 1065 and the reason for its filing then this article will be your guide.
Now here’s what you need to know.
Brief Intro to Form 1065
As simple information, you need to remember that being a partner you are bound to disclose your partnership income to the government. Any losses or profits of a partner’s share are reported in this form. However, no tax is calculated or paid. This form is simply to report the information to the IRS.
So there are two major steps to report the taxes.
- Partnership information about the total net income and the other relevant financial information is reported in the form.
- Each partner prepares an individual Schedule K-1. It will identify each partner’s allocated profits, losses, and assets and liabilities over the reporting period. Schedule K-1 is part of each partner’s personal tax return.
Note: Partners will not receive the Form W-2 as they are not employees.
Eligibility to File Form 1065
Every partnership business is eligible to submit one IRS Form 1065 to the government. The partnership is not a corporation but a union to carry on the trade or business on mutual terms. Also, a partnership is not an individual legal entity, thus a partnership agreement is signed and registered in the state partners want to do business.
According to the partnership agreement, it could be a general partnership or a limited partnership. So if you feel confused about the type of partnership you can learn from the agreement you had drawn for the business.
In case your company is an LLC and didn’t pay tax as a corporation then you will file taxes (as being in the partnership business), and then you can submit Form 1065.
Non-profit religious organizations can also file this form.
Get the Form 1065
You can avail the form from the IRS official website. It is interactive and can be completed online. Or you can download it and fill it manually after printing it. You can also place an order on the website to have it mailed to you.
Time to File Form 1065
You will need your partnership’s important year-end financial statements to fill the form. This includes the
- Profit and loss statement stating the net income and revenues, a list of deductible expenses, and a balance sheet.
In case your business is relevant to selling goods, you will need to calculate the cost of goods sold as well.
(So this means now that Sam and Phillip have to include their leather jacket sales too in Form 1065).
- Remember to provide the Employer Identification Number (Tax ID)
- Also, provide the Business Code Numbers that includes
- Number of partners in business
- Business starting dates
- Information of cash or accrual method of accounting
Will you Need to Fill Form 1099?
In any of the following two cases occur you will need to fill the form 1099 as well as the Form 1065;
- Owners are paid above their standard salary
- Anyone outside the partnership is paid above $600 for contract work.
Ways to submit the Form 1065
You can file Form 1065 by the online filing service also supporting Form 1065. Or through the popular online tax filing services like Turbo Tax etc that also supports Form 1065.
If you do not want to submit the file online, you can mail it to the current IRS address for your state.
If there are more than 100 partners in your partnership, you are required to file form 1065 online. The IRIS form 1065 instructions document has all the specific guidelines you need to follow in order to file the form.
Form 1065 Instructions
The tax form 1065 is a five-page document that requires a variety of business financial documents and information from other IRS forms. The step-by-step instructions for form 1065 include:
Step 1: Collection of Relevant IRS Forms and Financial Documents
The IRS form 1065 is an extensive document that requires information from multiple sources in order to be completed. The most essential documents required include balance sheets, profit and loss statements, total gross receipts and deductible expenses as well as the cost of goods sold. It also includes a number of subforms that need to be gathered beforehand.
Step 2: Fill in IRS Form 1065 A-J
After you have gathered all the relevant information, you start filling out the form by completing the general information section that the first section is composed of. These boxes A-J can be found at the top of the first page in the form 1065. The things you need to file are:
- The tax year being filed for
- Your mailing address and partnership name
- A-C: Your predominant business activity, main product or service, and your business code number.
- D: Your business tax ID number or the employer identification number (EIN).
- E: The starting date of your business
- F: Your total assets of the partnership at the year-end.
- G and H: The type of return you get and the accounting method used by your business.
- I: How many completed Schedule K-1 forms are attached by each partner or LLC member.
- J: A Schedule C or M-3 is filed in certain situations. If this is the case for your business, you make sure they are attached in this section.
Step 3: Fill in IRS Form 1065 Schedule B (Page 2)
Schedule B for Form 1065 falls under the header of “other information”. In this section, you have to answer technical questions about your partnership. The questions in this section pertain to your business entity type, percentage of each partner’s ownership, debt and investments of the partnerships, and their involvement in foreign financial accounts.
Some additional information about small business partnerships is required which includes partnership property, foreigners as partners, and tax obligation forms.
Step 4: Fill in the Schedule K-1
To calculate the income, losses, dividends, and capital gains you will need to use the Schedule K-1. As stated earlier, each partner must report it individually. That’s how each partner will get their tax return.
The required information for Schedule K-1 will be taken from the Income and Expenses section (Form 1065). It also covers the real estate income, bond interest, royalties and dividends, capital gains, transactions, and other guaranteed payments related to the partnership.
Step 5: Fill in the Schedule L
To record details about your business’s assets you will need to prepare the balance sheet, hence the Schedule L. It is designed to record the business assets, liabilities, and capital. The IRS is fully informed about the financial condition of your partnership.
In case you are filling the form and checking the box as “Yes” (in all four questions of part 6 in Form 1065) then you will not be required to fill the Schedule L, Schedule M-2, or Schedule M-3. This is only possible if your partnership meets all the four requirements in part 6 of Schedule B.
Step 6: Fill in the Schedule M-1
When the IRS is looking into the partnership it has a distinct set of measures or protocols to follow. Hence they will look into the net income of the partnership in the records but also the one that is actually taxable.
Any differences in income, expenses, and depreciation are recorded in Schedule M-1 that were excluded in the tax return.
However in the case when the partnership does not meet the four requirements in part 6 of Schedule B, you will still need to file Schedule M-1.
Step 7: Fill in the Schedule M-2
Any changes to your or your partner’s capital are informed to the IRS. For instance changes to the property or other contributions etc are covered in Schedule M-2. Items on Schedule L and Schedule M-1 should match so it’s best to fill these forms beforehand.
The Deadlines to File
The deadline to file Form 1065 for 2020 is till March 15, 2021. You may get an extension if you need one. This will extend the deadline by September 15, 2021. To file an extension you will need to fill Form 7004.
For any further information about forms, you can visit the website irs.gov, or contact the professionals: